alexandra zbuchea (ed.) - facultatea de management · 2017-05-18 · 4 alexandra zbuchea (ed.)...

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Alexandra Zbuchea (ed.)

Entrepreneurs. Entrepreneurship: Challenges and Opportunities in the 21st Century

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Entrepreneurs. Entrepreneurship: Challenges and Opportunities in the 21st Century Edited by Alexandra Zbuchea

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Entrepreneurs. Entrepreneurship: Challenges and Opportunities in the 21st Century Edited by Alexandra Zbuchea All the rights of this version belong to Faculty of Management – National University of Political Studies and Public Administration (SNSPA) and to the authors, 2017. Wording, contents and translation quality of the paper are entirely in the charge of authors. Articles or extracts from this book may be reprinted on condition that the names of the authors and the title of the book are clearly stated. SNSPA, Faculty of Management 30A Expozitiei Blvd., Sector 1, 012104, Bucharest, Romania www.facultateademanagement.ro This book first published in 2017 by Tritonic Publishing 5 Coacazelor St., Sector 2, 022651, Bucharest, Romania ISBN (E-book): 978-606-749-241-5


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CONTENTS

Foreword / 7 Acknowledgements / 9

Entrepreneurs in a sustainable knowledge-based economy / 11 Raluca Anne-Marie TONE

Acceptance of chosen gamification solutions in motivation systems in small and medium enterprises / 23 Jacek WOŹNIAK, Katarzyna ŁUBIEŃSKA

How digitalization changes the internationalization of entrepreneurial firms: theoretical considerations and empirical evidence/ 38 Andreas M. WITTKOP, Katrin ZULAUF, Ralf WAGNER

An empirical analysis of entrepreneurial activity determinants in the European Union countries / 51 Valentina Diana RUSU, Angela ROMAN

Credit scoring models for microcredits: a literature review / 63 María Nela SEIJAS GIMÉNEZ, Sara FERNÁNDEZ-LOPEZ, Milagros VIVEL-BUA

Analysis of the efficiency of innovation projects supported by the EU funds – a case study of Polish SME companies / 74 Tomasz NOREK

On the way to mass entrepreneurship in Russia / 89 Sergey SMIRNOV, Evgeniy CHEBERKO

Major challenges small and medium-sized enterprises facing within Asia: solutions for mitigating them / 102 Naoyuki YOSHINO, Farhad TAGHIZADEH-HESARY

Does size matter for responsible companies? / 125 Alexandra ZBUCHEA

University - a knowledge incubator for developing entrepreneurial skills / 135 Ramona - Diana LEON

Does Măgurele Science Park meet the criteria of the science park management paradigm? / 148 Anda GHEORGHIU

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New technologies and entrepreneurial challenges for reinventing public organizations / 160 Mauro ROMANELLI

Develop specific budget policies to reduce poverty in Albania / 173 Zamira SINAJ

An insight into entrepreneurship in Romanian cultural-creative industries / 183 Cristina LEOVARIDIS, Gabriela POPESCU

Entrepreneurial attitudes, school environment, and parents’ civic participation / 200 Daniela PANICA

The Young Entrepreneur: Between Rational Individualism and Holism in the Decision-Making Process / 208 Stefan STĂNCIUGELU, Dumitru IACOB

Tolerance for ambiguity and self-efficacy - predictors for entrepreneurial orientation? / 215 Dan Florin STANESCU, Virgil GHEORGHE, Marius Constantin ROMASCANU

Maturity of the risk management approach in the Romanian entrepreneurial behavior / 224 Sergiu Octavian STAN

Strategic human resources management specificity in organizational environments focused on intrapreneurship / 233 Carmen NOVAC, Raluca Silvia CIOCHINĂ

The relationship between corporate wisdom and corporate entrepreneurship / 245 Metehan ORTAKARPUZ, Ali ALAGÖZ

Changes of the business models in the European liberalized markets: an empirical overview of evidences from the utilities’ sector / 256 Florina PÎNZARU, Andreea MITAN, Lucian Claudiu ANGHEL

Developing Trust in a Retail Brand Website / 262 Rareș MOCANU

Logistics information system as an independent business: LIS as a service / 271 Florin Codrut NEMTANU, Mădălina PAVEL, Dan GASPAR, Andreea MOCANU


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FOREWORD The relevance of small and medium-sized enterprises (SMEs) have been many times argued, starting from economic figures. The SME sector represents the biggest employer and an important contributor to the GDP. The impact of SMEs is, nevertheless, more complex. For instance, innovation – including social innovation – is a backbone provided by SMEs to economic development, to opening up new markets. The social, cultural and personal impact of entrepreneurial endeavors is shaping the societies and economies. In this framework, the public and academic interest in and support of entrepreneurship is increasing. The present volume includes part of the studies presented at the conference Entrepreneurs. Entrepreneurship. Challenges and Opportunities for the 21st Century organized by the Faculty of Management from the National University of Political Studies and Public Administration in Bucharest, Romania, on May 18-19, 2017. The conference has aimed to map the contemporary entrepreneurial landscape, by bringing together academics, researchers and entrepreneurs to discuss the perspectives of responsible development of small and medium-sized enterprises in a dynamic environment, a turbulent one in the same time. In the past decades, we have witnessed an explosion of the entrepreneurial sector, all over the world. The complex changes in the economic, social, cultural, technological and political environments have affected deeply the economic practices and entrepreneurial milieu. The 21st century brings new opportunities, but also new threats to entrepreneurial endeavors. New forms of entrepreneurship emerged in the past decade, such as corporate or social entrepreneurship, which challenges traditional ways of doing business. All these aspects, as well as trends already observable, were investigated during the mentioned international conference. The studies undergone my more than 50 academics from Albania, Austria, Germany, Greece, Italy, Japan, Poland, Romania, Russia, Spain, Turkey, the United States, and Uruguay are very diverse in terms of content, sector of the investigation, geographic area considered and research method. They have

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been grouped in several tracks, addressing the creative entrepreneurship, the corporate entrepreneurship, the challenges for the entrepreneurs, the entrepreneurial behavior manifest in contemporary society, the impact of entrepreneurship and on development, and the entrepreneurial society. The conference also includes four round table, designed as expert panels investigating the following areas: Entrepreneurial Innovators; Entrepreneurship and Digital Revolution; Entrepreneurial University Challenges; Social Entrepreneurship: An East – West Divide? The participants to these events represent the entrepreneurial, the academic, as well as the public environments. Sharing the expertise and opinions of persons with such diverse backgrounds leads to a complex understanding of the phenomena considered. We hope that a similar influence will have the reading of this volume. It is aimed to offer new understandings, to open up new exploration direction and to provoke creative thinking and insightful research in the field of entrepreneurship. Alexandra Zbuchea Conference Chair


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ACKNOWLEDGEMENTS This Proceedings is the result of the collaborative work of the Organizing Committee, the Scientific Committee and reviewers, the Track Chairs, as well as of the participants at the conference. We thank all the persons involved in this endeavor.

Scientific Committee Members: Oana Almășan, Arizona State University, USA Gültekin Altuntas, Istanbul University, Turkey Andreia Andrei, Alexandru Ioan Cuza University, Romania Laurențiu Anghel, Bucharest University of Economic Studies, Romania Corina Antonovici, SNSPA, Romania Constantin Brătianu, Bucharest University of Economic Studies, Romania Camelia Crișan, SNSPA, Romania Cristian Ducu, University of Bucharest, Romania Florin Foltean, West University of Timișoara, Romania Mihaela Lambru, University of Bucharest, Romania Cristina Leovaridis, SNSPA, Romania Marina Ochovskaya, Moscow State University, Russian Federation Florina Pînzaru, SNSPA, Romania Mauro Romanelli, Parthenope University of Studies of Napoli, Italy Elies Segui-Mas, Polytechnic University of Valencia, Spain María Nela Seijas, Universidad de la República, Universidad Católica del Uruguay Manuela Tvaronavičienė, Vilnius Gediminas Technical University, Lithuania Anna Ujwary-Gil, National-Louis University, Poland Ralf Wagner, University of Kassel, Germany Wioletta Sylwia Wereda, Military University of Technology in Warsaw, Poland

Organizing Committee Members: Costin Dămășaru Irina Isvoranu Rareș Mocanu Ioana Petrescu Rodica Săvulescu Segiu Stan Cristian Vidu Alexandra Vițelar

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Track Chairs: Ralf Wagner (The Entrepreneurial Behavior) Alexandra Vițelar (Creative Entrepreneurship) Ramona Leon (Entrepreneurial Society) Rareș Mocanu (Corporate Entrepreneurship) Oana Almășan (The Entrepreneurial Society) Florina Pînzaru (Entrepreneurship and Development) We also thank the experts and professionals taking part in the round tables associated with the conference: Florina Pînzaru (Dean, Faculty of Management – SNSPA) Horia Grozea (Director Online & Mobile Payments, Netopia Romania) Radu Georgescu (owner, GECAD Ventures) Marian Costache, Motion Vision Communication Claudiu Jojatu (Friends Advertising) Vlad Buda (managing partner, Steam Coffee) Dan Ursan (managing partner, Steam Coffee) Cristian Tudor (owner, Micro Green) Andrei Botescu (Managing Partner, Pegas) Cristian Păun (Vice-Dean, Faculty of International Economic Relations -

Bucharest University of Economic Studies ) Toma Adrian Dinu (Dean, Facultaty of Management, Economic Engeneering in

Agriculture and Rural Development - University of Agricultural Sciences and Veterinary Medicine)

Ioana Petrescu (former Ministry of Finance; SNSPA) Karl-Heinz Leitner (University of Graz) Dorin Călin (National Operations Manager, JA Romania) Radu Popescu (Advanced Software Engineering Associate Manager, Accenture) Cosmin Mălureanu (CEO Ascendia) Luminița Derscanu (Euroins) Cristi Dima (CEO, Hobber) Mihaela Lambru (Faculty of Sociology - University of Bucharest) Ralf Wagner (University of Kassel) Corina Angelescu (Social Impact Award Romania) Oana Almășan (Arizona State University; Faculty of Management - SNSPA) Irina Sorescu (President, MamaPan) Mihaela Cărăușan (Vice-Dean, Faculty of Public Administration - SNSPA;

Executive Director, Centre for Academic Excellence) Răzvan Ostroveanu (Institute)


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ENTREPRENEURS IN A SUSTAINABLE KNOWLEDGE-BASED ECONOMY Raluca Anne-Marie TONE1 ABSTRACT Entrepreneurs create jobs, commercialize and disseminate innovations and stimulate development. They are influenced by a country’s cultural specificity and may affect the cultural activities which are usually underfinanced. Still, when it comes to entrepreneurship most researchers tend to concentrate on identifying the business activities and personal traits that enable entrepreneurs to access and mobilize the necessary resources in order to start a new business. The modern business environment emerges as a network in which the companies collaborate and they do not try to eliminate competitors by breaking the law or immoral practices. Besides, in the current sustainable knowledge-based economy, the focus is on co-ompetition and not on competition. As a consequence, entrepreneurs’ job becomes even more difficult since they have to support inter-organizational knowledge sharing and also gain competitive advantages. Truth being said, it is a true challenge to be an entrepreneur in the Romanian economy. Here, the socio-economic environment is highly unstable and unpredictable. As a consequence, entrepreneurs spend more time before reaching what is supposed to be the right decision and take several risks. On the one hand, they have to be active and ready to act, adapting properly to the challenges that may occur in the micro- and macro-environment. Starting from these, this article aims to analyze how does the Romanian government support the development of an entrepreneurial environment. Since the focus is on “how” issues, a case study research strategy is used.

KEYWORDS Entrepreneurship knowledge; sustainability; entrepreneurship; policy; Romania.

INTRODUCTION A good manager must have a strong personality, exercise an intense leadership, continually tries to improve his/her work and achieve the objective, is adaptable to new and unknown.

1 National University of Political Studies and Public Administration, 30A Expoziției Blvd, Bucharest, 012104, Romania, [email protected].

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According to O. Nicolescu (1998), a top manager has a set of beliefs, values, behaviors concerning how to run the organization. Thus, the manager's personal values, beliefs, his personal ability to adapt to the realities of socio-economic have a big impact on management adopted style that has a major impact on company’s activity. We can, therefore, say that a managerial culture as part of organizational culture can exert on it a positive or negative influence, depending on the aggregation of values, attitudes, behaviors held by the manager. R.L. Kahn and D. Katz (1996) from identified characteristics of an effective manager, stating that he spends much time planning, discussing with subordinates and training them, gives them more freedom to make their own decisions regarding the fulfillment of the tasks set with him, is based more on delegation, is seen by employees as being concerned and interested in them and not least, an effective manager is one who is able to increase company productivity and succeeds in determine the employees be more involved in their activities. According to Rensis Linket theory (1955), there are four dominant leadership styles: authoritarian-exploiter, authoritarian, the consultative type and participatory type. As a conclusion, a good manager has so many roles: interpersonal, informational and decision-making. On the other hand, an effective manager adapts his management style to the characteristics of the working group considering the purpose and objectives of the company's activity. ENTREPRENEUR, ENTREPRENEURSHIP IN LITERATURE According to the DEX, the term entrepreneur is of French origin and focuses on the primary function of the contractor, the person who runs a business. The concept of entrepreneur dates back to the 18th century in France when the economist Richard Canttilona associated risk-taking with entrepreneurship. In the same period, in England, the entrepreneurs are beginning to make an important contribution to the growth of the economy, with the Industrial Revolution recording its first influences on macroeconomic indicators. Nowadays, not far from the initial concept, an entrepreneur is the business man/woman who accepts the financial risk to develop new and innovative projects. Actually, innovation is the entrepreneur's specific tool, the entrepreneurs need to look for sources of innovation, they need to see and


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understand every change, any symptoms that indicate that change in order to make the right decision and transform one idea into a successful innovation. According to Joseph Schumpeter (1934), an entrepreneur is a man of such managerial ability that introduce something entirely new and who is motivated by the desire to find a private commercial kingdom, by the will to conquer and prove his superiority and by the joy of creating. According to Schumpeter’s theory, economic development consists in the carrying out of new combinations for which possibilities exist in a perfectly competitive economy, where is perfect competitive equilibrium. New combinations come about in the form of innovations and therefore economic development is a disturbance of that equilibrium. The behavioral school gives the most attention to the elements that characterize the entrepreneurs and according to their representatives, the main aspects that are specific to the entrepreneurs are those of innovators, creative, tenacious, original, flexible, materialistic. McGregor (1960), Mayo (1933), Ch. Arghiris, O. Gelinier and H. Maslow (1954), the representatives of the behavioral school emphasizes that the company’s human resources should come first in the management process, establishing a set of principles, rules, and methods to ensure the superior valorization of human potential. Over the past decades worldwide, many authors (Moore, 1986; Timmons, 1989; Krueger, Reilly & Carsrud, 2000; Beugelsdijk, 2007; Nistoreanu & Gheorghe, 2014) approached entrepreneurship from different perspectives, studying: the entrepreneurial process, the entrepreneurial framework, the entrepreneurial behavior, the entrepreneurial culture, the entrepreneurial education as well as the connections between them. Many authors defined the entrepreneur as an innovative person (Szabo & Herman, 2012) who identifies opportunities and exploits them, developing new solutions for the market’s needs, while taking risks (Hatten, 1997). P. Drucker (2007) said that entrepreneurship can be learned. The literature on entrepreneurial vision generally focuses on its importance for the economic growth as well as venture’s creation (Noaghea). Fable and Larwood (1995) showed that entrepreneurs have a higher score on risk taking and are more proactive and lower score on vision formulation compared to non-entrepreneurs. In their study, Fable and Larwood (1995) found out that entrepreneurs exercising more control than non-entrepreneurs, therefore, there is a major difference between those two. Another significant difference

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was that non-entrepreneurs desire more control and that entrepreneurs maintained their position in the company for a longer period than non-entrepreneurs. The results established that entrepreneurs have more inclination for creativity and have better vision than non-entrepreneurs. Another difference that should be taken into consideration was that entrepreneurs have fewer team members than non-entrepreneurs due to the general size of the companies. Fable and Larwood (1995) explained the tendency toward a cautious behavior of entrepreneurs. They found out that the entrepreneurs are more cautious in their actions and in order to do things right, they want and try to control every single action they take. On the other hand, non-entrepreneurs, exercise more control in order to justify their ambition and position in the company, but they feel much pressure to prove themselves. In the study conducted by Fable and Larwood (1995), entrepreneurs identify themselves with creativity so that is why probably they do not feel much pressure to prove themselves. In the study conducted by Noaghea the Romanian Leader’s personality characteristics were: “ambition, prudence, learning approach, adjustment. They did not show moderate or high-risk leadership derailers. (…) Men had higher adjustment, ambition, inquisitiveness compared to women. Compared to multinational and Romanian company managers, entrepreneurs registered lower scores for ambition and adjustment and lower scores for seduction derailers (bold) and status interests (power, recognition), but higher scores for intimidation derailers (cautious, excitable).” Kaiser at al. (2008) acknowledged that leader’s decisions, strategies, and influence on others are determining the fate of their organizations. The success of innovative entrepreneurial activities is based largely on the attitude of entrepreneurs towards the following items (Ticlau, 2014): resistance to change in a complex business environment, dynamic and competitive, new technology, focus on citizen - customers (emancipated, informed and active), multitasking. Kardos (2012) stated that entrepreneurs have competitive advantages only when a successful sustainable innovation is accomplished. He said, that Small and medium-sized enterprises (SMEs) are recognized as the ones that bring innovation, more entrepreneurial spirit and competitiveness, therefore they are the sustainable development of the economic environment.


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ENTREPRENEURS, ENTREPRENEURSHIP IN ROMANIA Entrepreneurial activity is monitored worldwide by various bodies such as The Global Entrepreneurship Monitor (GEM). GEM is the world's foremost study of entrepreneurship which provides high-quality information, comprehensive reports, custom datasets and expert opinion for key international organizations like the United Nations, World Economic Forum, World Bank, and the Organization for Economic Cooperation and Development (OECD). Through its reports and studies, GEM is able to observe the evolution of entrepreneurship and tries to understand the entrepreneurial phenomenon. According to The Report of Global Entrepreneurs Monitor 2015-1016, the entrepreneurial activity in Romania increased and people’s perception towards entrepreneurship has improved. TEA (Total Entrepreneurial Activity) has a value of 10,8%, higher than 2013 and also higher than the European average. Important to mention here is that the number of entrepreneurs who starts a business because they have seen a market opportunity is higher than the number of entrepreneurs that have started the business in order to survive. Romania Start-Up Nation is a governmental program launched this year to support 10,000 newly founded companies. The program aims to "increase the number of employees, reduction of unemployment and rising consumption". Funding for the period 2017-2020 the program for de minimum aid, for a total annual maximum of 10,000 beneficiaries, is covered from the budget approved annually by the public entity with responsibility for small and medium enterprises. The source of financing will be from the state budget and the EU funding. Start-Up Nation is a program through which the Romanian state wants to help entrepreneurs to open businesses and promote entrepreneurship. The Start-Up Nation project aims to finance businesses with up to 44,000 euros. Projects set up after 30 January 2017 are eligible for the project and they can only participate once. The areas of activity that will receive the highest number of points will be IT, production, creative industries (health and education), services and trade. The main steps to access Start-up Nation Romania are as follows: Registration of the applicant on the Agency's website http://www.aippimm.ro; Online application submission can be done for 30 calendar days from the date when the application will be active (estimated May, 2017); The application will automatically generate a score (minimum 60 points to qualify from a maximum

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of 100); Checking the eligibility of the applicant, the proposed activities for financing, and linking the business plan equipment with the eligible CAEN codes; Signing the financing contract (Admission to the program and obtaining the funding will be done in the reverse order of the scores obtained by the projects). According to the Ministry of Business, Commerce and Entrepreneurship Environment representatives, the program aims also to combat the negative trend in Romania regarding the number of companies. Therefore, in order to increase that number, this program has numerous categories of eligible expenditure and the list of CAEN codes is very generous which will stimulate entrepreneurs to start a business. The main eligible expenses are: Technological equipment, machinery, equipment and work installations - including related software, needed to carry out the activities for which it requested funding; Measuring and control devices, controllers, readers for bar code, electronic scales with / without printer for labeling, electronic fiscal markers; Wagons of category N1, N2, N3, except for off-road vehicles G, according to MLPTL Order 211/2003, as amended and supplemented; IT equipment, computing (PC type, consisting of: central unit, server, monitor, printer / copier / multifunction, including portable systems, licenses required to conduct business, audio-video systems, etc.); Acquisition of goods provided under sub-groups 3.1 Furniture, 3.2 Office equipment and 3.3 Protection systems for human and material values; Purchase of specific installations / equipment in order to achieve energy savings; Purchase of heating or air-conditioning installations related to the place of business, production or services; Expenses related to rents for workplaces, production premises and premises for the provision of services and trade (buildings, production halls, premises arranged for service activities, production and trade, including prefabricated elements); Creating a web page for presenting the activity of the applicant and the products or services promoted; Acquisition of intangible assets related to on-line software, software required to carry out the activity for which funding is requested; Entrepreneurial Skills Development Courses - for Associate / Administrator of the Applicant Society, course organized by a recognized entrepreneurial education body; Consultancy for the preparation of documentation to obtain funding under this program and project implementation. An ongoing project is SRL-D: Limited Liability Company - Debutant regulated by Emergency Ordinance 6/2011 and was performed in order to stimulate the creation and development of micro-entrepreneurs. To support young people and encouraging them to open up a new business, SRL-D comes with a number


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of advantages over a normal or a PFA: Register is free. You will still need a stamp of 4 RON in the Trade Register and the minimum registered capital of 200 lei, which can be subsequently withdrawn; Can apply for a financial aid of 10,000 euros; Guarantees provided by the National Credit Guarantee Fund for IMM’s, up to 80% of the requested loan, in the amount of 80,000 euros; Exemption from payment of social security contributions (pension, 15.8% of gross) payable by employers for employees within four gross average salary per economy in the previous year. In addition to the specific obligations of any limited liability company, SRL-D has a number of obligations typical: Within the 30 working days from registration, SRL-D must notify the territorial office for small and medium enterprises and co-operatives of AIPPIMM within whose jurisdiction has its registered office; Employ at least two employees when they make the first disbursement of the AFN's $ 10,000 and receive credit or counter; Annual reinvest at least 50% of the profit in the previous year; To submit to AIPPIMM semester and annual financial statements. METHODOLOGY In order to find the challenges that a Romanian entrepreneur has in his/her economic environment, some goals have been set in this qualitative research: understanding why some choose to be entrepreneurs and not employees; identify the support measures by the government for young entrepreneurs; analyze the skills and competencies of young entrepreneurs. The research method is semi-structured interview followed by a focus-group of the same persons that were interviewed in order to discuss the main conclusions. The interviews were conducted in March 2017. The sample consists of 10 participants, 5 men and 5 women, aged between 26 and 40. A quarter of the selected entrepreneurs are graduates of the Bucharest University of Economic Studies, another quarter have studied at SNSPA and the others have studied psychology, law, or literature. Each interview lasted maximum 30 minutes and the focus-group discussions lasted 2 hours. RESEARCH RESULTS The results of the theme analysis were very interesting regarding the perceptions of the entrepreneurs of the Romanian business environment. The

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up to 30 years old entrepreneurs said that the Romanian environment is a tricky and hard to penetrate while the others, up to 40 years old said that a smart entrepreneur has to be able to navigate through it. The first theme, regarding the reasons why they choose to be entrepreneurs, almost all of the participants agreed that being an entrepreneur is better than being just an employee. The freedom of taking their own decisions, the satisfaction of their work even if is less paid is more rewarding than just a paycheck. One of the entrepreneurs stated that when he made the first sale in his activity of entrepreneurship, his confidence in himself and his plans gave him the strength to continue. Another female interviewee says that the most important moment was when she received thanks from an employee for being so caring. One of the entrepreneurs who activated more than 5 years in a multinational organization said that being “an entrepreneur means living in reality and truth” while being an employee is safer from all points of view: time, money, the safety of tomorrow. On the other hand, most subjects consider that being an entrepreneur in Romania is a huge challenge due to the bureaucracy in obtaining the necessary approvals for conducting business legally. There are a lot and unnecessary authorizations to be obtained in order to function legally and this is a huge problem in starting the business. One of the interview subject described in details his way to obtain a construction authorization and said that it took him more than 2 years and more than 10 applications in different institutions, sometimes going twice in the same office in order to obtain his legal authorization for building a warehouse. Another challenge is the rapidity of the law modifications. Every month you need to be careful in law modifications and for an entrepreneur, this is a loss of time and energy that can disturb their confidence in moving forward. One of the respondents said that she spends almost half of her time studying, reading laws and going to an institution in order to function legally. Regarding the government support measures, the interviewed subjects stated that the economic environment is unstable and unpredictable. They said that the fiscal environment is very hard to follow, there are countless tax changes. Most subjects believe that a change in rules and more important a reducing a bureaucracy is needed. The simplifications of administrative procedure are very


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important in their activity, they stated that a tax relief is a better way to stimulate business environment. The interview subject considers that the state institutes should be more involved in helping the entrepreneurs than in making pecuniary penalty, they need help in clarification specific problems that occur in their activity. The respondents want the state to improve the fiscal code and to relief, the access to loan, to create a stable and predictable economic and fiscal environment in order to stimulate a business environment in Romania. The entrepreneurs said that the state should give entrepreneurs the chance to be creative and support their initiatives, help them with the specific problems that occur in the daily activities and put a stop in getting them penalties in every single and sometimes not so significant mistake. They stated that a prevention law is better justified than the countless possibilities of punishing them. In the focus-group that was created, it was a debate between the interview subject regarding the prevention law. A part of the subjects believes that the penalties that the state should be more and the amount should be bigger, but many of them said that the state should focus on helping the entrepreneurs in solving their problems and adapting the law to their needs in order to stop crime in a business environment. They agreed that an entrepreneur should act in good faith and respect their business partners as well as the relations with the state authorities in order to build a solid business relationship. They also agreed that a good entrepreneur should persevere and even stubborn in believing their own ideas in order to succeed. All of the interview subjects declared that they risked their financial resources in order to make their ideas a reality and even one of them failed he declared that he continued to believe in his idea and finally he makes it possible. Another respondent said that the entrepreneur should not be stopped by the lack of support from the state or by a various obstacle such as bureaucracy and should be confident that he will succeed. In the end of the focus-group discussions, the up to a 30s group of participants received some tips from the up to the 40s group. They were advised not to fear the failure and start over again, not to fear of making mistakes but to learn from them and they were encouraged to persevere in their activities and believes. In the end, one of the interview subjects quoted professor Howard

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Stevensen from Harvard Business School: “while the employees studies consequences, the entrepreneurs change the world”. Starting from these findings, a future research should be developed in order to provide a solution for Romanian government to allocate more and effective resources for development the entrepreneurial environment. CONCLUSIONS Therefore, the entrepreneurs must have a strong personality, perform an intense leadership, manifest permanent preoccupation for optimizing the activity and achieving the objectives, have the capability to continuously adapt to the new and unknown. Each of these characteristics will allow them to understand the environment in which their company operates and to increase the quality of their decision. Due to these, they will be able to develop several business relationships based on competition. On the other hand, the Romanian entrepreneurs have to increase their profitability by being more responsible, respecting the general rules of the business community and paying attention to financing, tax environment and regulations. In order to do so, the entrepreneurs have to learn about the continuous transformation of the Romanian economic system and to be open to change. On the other hand, the government needs to create a stable and predictable economic and fiscal environment in order to stimulate a business environment in Romania. REFERENCES Angulo-Guerrero, M.J., Pérez-Moreno, S., and Abad-Guerrero, I.M. 2017. How economic

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Van der Zwan, P., Verheul, I., Thurik, A.R., and Grilo, I. 2013. Entrepreneurial progress: climbing the entrepreneurial ladder in Europe and the United States. Regional Studies 47(5), 803-825.

Welter, F. 2011. Contextualizing entrepreneurship - Conceptual challenges and ways forward. Entrepreneurship Theory & Practice 35(1), 165-184.

www.gemconsortium.org/report/49480 www.aippimm.ro


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ACCEPTANCE OF CHOSEN GAMIFICATION SOLUTIONS IN

MOTIVATION SYSTEMS IN SMALL AND MEDIUM ENTERPRISES Jacek WOŹNIAK1 Katarzyna ŁUBIEŃSKA2 ABSTRACT Gamification has recently become one of the management science “hot topics”, and game mechanisms are commonly used as a tool for achieving management goals. However, its application in employee motivational systems in SMEs seems to be progressing slowly, despite the significance of innovative solutions in this field for entrepreneurial profits. This may be explained by one of the specifics of SMEs: personal relationships between employees and management or the fact that employees are not used to formal procedures. The goal of the text is to analyze SME employees’ opinions concerning the incorporation of chosen gaming mechanisms into their motivation systems, and some of the determinants of their opinions. The study is, therefore, based on two samples. Two questionnaires (one on a sample of 100 employees of a discount store chain, and the second on 73 “typical” SME employees) asked respondents to declare their preferences for different types of rewards in motivation systems, including readiness to be involved in two gamification-type solutions: based on (i) lotteries, or (ii) BLAP gaming with non-material and material prizes. The effects of chosen factors: psychological (risk aversion) and situational (dissatisfaction with current incentive system) on the perception of two different ways of incorporating gamification into motivational systems, were analyzed. The results show that dissatisfaction with the current incentive system and not being risk-averse favor accepting the incorporation of gamification solutions into motivational systems and the responses of discount store employees and SME employees are similar.

KEYWORDS Gamification; HRM; gamification in HRM; SME; gamification in SME.

INTRODUCTION Gamification, understood as the application of entertainment game mechanisms to other areas of social reality, is still hotly debated in the media, and its application in organization management is a fashionable scientific topic.

1 University of Finance and Management, 01-030 Warsaw, ul.Pawia 55, Poland, [email protected]. 2 University of Finance and Management, 01-030 Warsaw, ul.Pawia 55, Poland.

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Currently, apart from animating sales and building client relations, enterprises widely use gamification in people management – for better training, motivating pro-health behaviors, recruitment and selection, and other operational functions. It should be noted, however, that these are solutions for large businesses, while scientific data concerning the use of gamification in small organizations is practically non-existent. The fact that small and medium enterprises (SMEs) do not apply new solutions in management is not surprising – one of their characteristic features is a limited access to management knowledge. Several barriers which make it difficult to accept gamification solutions by SMEs may also be shown. So before implementing gamification, it is worth verifying whether a lack of management knowledge is the main barrier this innovation may meet, and specifically – whether SME employees approve of such solutions. The goal of the text is to present chosen uses of gamification in people management and verify the extent to which SME employees approve of them. While the theoretical analysis is on a general level, the research is a pilot study as SMEs and their employees differ to such an extent, that regardless of the size and character of the sample, it is difficult to make reasonable generalizations based on one study. The results presented here should thus be treated as an exploratory study, to be broadened with time to include different kinds of SMEs. From a theoretical standpoint, the study also attempts to verify whether the low focus on procedures, characteristic of enterprises in which owners dominate in the management system, is a key barrier for introducing gamification. With this goal in mind, two groups employed in companies where there is direct contact between the workers and their main decision maker (entrepreneur or manager) are compared. The first group comprises 100 employees of a chain of stores, where teams are small and independent but procedures strongly formal; the second – more typical SMEs, in which work relations with the owner are direct but the company is based on fewer formal organizational procedures. The text is organized as follows. The first part describes gamification and its already recognized potential for HRM. The second recalls basic scientific facts concerning the specifics of SMEs. The next two describe research results. We conclude with the main findings and the consequences of using gamification for people management.


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GAMIFICATION AND ITS USE IN PEOPLE MANAGEMENT The term ‘gamification’ was developed to stress that this group of techniques transfers solutions from entertainment type games to other areas of human functioning. The most frequently cited definition of gamification is considered to be (Seaborn & Fels, 2015; Cardador et al., 2016) “using elements of games in contexts other than a game context” (Deterding et al. 2011). The extensive literature of the subject also emphasizes that, though a commonly accepted, precise definition is lacking, gamification is generally considered to be an activity in which certain solutions characteristic of entertainment games are transferred to other areas of social reality, in which they are used to encourage people to realize tasks designed for them (Hamari et al., 2014; Seaborn & Fels, 2015; Cardador et al., 2016). A list of game mechanisms, i.e. structures which makes playing games attractive, usually comprises such elements as points, orders, levels, challenges, and prizes (Woźniak, 2016). Basing on the need to achieve and to gather (Ryan & Deci, 2000; Przybylski et al., 2010), their task is to involve users in an activity and in effect change their behavior so that they are able to solve various problems. Some authors stress that equating game mechanisms that can be used to increase the player’s motivation to perform with points, levels and badges have little to do with gamification, and depreciatingly call them BLAP-type gamification (Ferrara, 2013; Balcerak, 2015). In reality, the reasons behind an interest in playing are wider than just the wish to gather points, a good example of which are games based on the drawing (with strong random component) (Dale, 2014; Balcerak & Woźniak, 2014). An illustrative and frequently cited typology divides players into four groups: needing achievement; needing to understand the mechanisms of the world in which the game is played; needing to make contact with others; and needing to influence others (Wożniak, 2015). The work (Hamari & Tuunanen, 2014) presents several other typologies. It is obvious that different needs may motivate the player to play, and the game, acceptable for some players, may be inadequate for others. We can, therefore, say that gamification is an incorporation of chosen game mechanisms into an area of reality creates an environment for activity in which chosen kinds of actors (players) will become involved, while others will find this more difficult. Incorporating elements of games in a non-game environment therefore means that they become a part of tasks which are traditionally not viewed as play – for gamification to be effective, however, i.e. for people to become involved in their task and to perform better, there has to be a good fit between the mechanism and the psychological profiles of potential players. In

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conclusion, there is no good gamification per se, and game mechanisms need to be adjusted to the expectations and psychological profiles of those who are to become involved. It is no easy matter to distinguish all the areas of management in which gamification is used, not only because of the multi-faceted aspect of gamification. Gamification became fashionable once it had proved successful in the area of client relations, and attempts of applying it to other areas are becoming more widespread. Games and their elements, now identified as gamification, have traditionally been used in people management – e.g. managerial simulations, or quizzes and icebreakers in training (Woźniak, 2006; 2015; 2016). Secondly, game mechanisms have also been traditionally used with a motivating function. “Best employee of the year” certificates, visualizations of successes (e.g. weekly sales results of our chain of stores) or of important events (“recently joined us” or “our employees building a school after the Tsunami”) have used game mechanisms without calling it “gamification”. Newer uses from this area include points as a material-symbolic form of rewarding successes, basing on competitiveness (with others or with oneself), but also on the need to collect. Gamification methods are also commonly used in the pro-health activities of HR departments (sports programs, but also OSH). Historically, HR departments started to use gamification under this term for image-building (employer branding) and recruitment purposes. Most obviously, inspirations for gamification in employer branding have come directly from marketing. The uses of gamification in recruitment base on the information that involvement in the game world may bring both players and their observers. Games and competitions can thus be used as a tool to increase knowledge concerning a given job (professional pre-orientation, giving candidates a realistic picture of what will be expected of them), and increase new employees’ involvement and effective adaptation. At the same time, with some qualifications they may be used to gather information about the skills and competencies of potential employees – the behavior of simulation winners may be treated as an indicator of their potential in everyday life (Woźniak, 2014; 2015). It should be noted that gamification is relatively infrequently used in compensation management. Although points are a reward-carrying tool, not many organizations have dared to incorporate this kind of reward into the core of their remuneration systems, allowing points to be exchanged for material


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benefits. Research has shown that such solutions can be effective both for motivating and for the result of sales in sales-force (Chung, 2015), and even in Poland, some salespersons consider them a useful tool for increasing involvement (Woźniak, 2016). Salespersons, however, are a specific professional group, characterized by higher risk-taking levels (Chung, 2015), and what follows – by a greater readiness to accept new and untypical solutions. THE SOCIAL ENVIRONMENT OF SMES AND ITS POTENTIAL FOR USING GAMIFICATION SMEs are a significant sector of contemporary economies both due to the number of people employed, as their economic effect. E.g. in Poland in 2012 they created 48,5% gross added value for the GDP, were responsible for almost half entrepreneurial investments (41,6%), and employed ca. 70% working Poles (PARP, 2015). Although for statistical purposes they are variously defined, qualitative definitions usually include an owner who dominates in a simple management structure, keeping decision-making powers, and limited access to knowledge from different areas (Lachiewicz & Matejun, 2012). Qualitative analyses also emphasize two features, one of which – limited access to financial products – seriously limits the development potential of these kinds of companies. The second – a good understanding of their clients – is an advantage (Lachiewicz & Matejun, 2012). We should also note other serious barriers to innovation, very characteristic of these companies – a lack of structures responsible for creating new solutions (such as R&D) or incorporating them into market practice (marketing); limited access to knowledge and experience due to the small number and frequently low competencies of the people employed; management style which is autocratic or at least dependent on the character of the owner. At least a part of the SME sector, however, is an important source of economic innovation. As a whole, the sector is very differentiated and contains companies from the Knowledge-Intensive Business Services (KIBS) sector and start-ups (companies launching advanced IT businesses). Currently, the KIBS sector covers not only traditional business services and high-tech developers, but also many ICT knowledge-based services, as well as bio-high-tech companies (an effect of increased investment in health services and pharmaceutics). KIBS companies comprise approximately 12% of all small businesses in the US (Jennings et al., 2009, p.340).

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Variously innovative start-ups are able to try out different solutions and ideas for enterprises. As a result, research treats the SME sector not only as a source of new places of work, but also as a developer of new solutions, both those necessary as those unnecessary for clients (a solution testing segment), a quick adjuster to changing client needs, and a stabilizer in times of financial crises or in underprivileged sectors of the job market (Lachiewicz & Matejun, 2012). From the perspective of our analyses, which concern the possibility of introducing gamification into the HRM, of significance is the simplified management structure characteristic of SMEs. In these companies, the organizational structure is frequently linear and based on direct and informal relations between manager/owner and employee, as an effect of which formal procedures are fewer. This low formality of personnel processes characterizes all areas and functions. Recruitment bases on recommendations, while form and level of remuneration are developed through personalized negotiations (Lachiewicz & Matejun, 2012) (and are simple rather than highly structured systems). Other incentive systems include personalized motivating and individualized developmental career paths – these do not favor the use of gamification systems, which of necessity are formalized. Employees of SMEs may be accustomed to these traditional forms; so it is worth verifying whether the habit is not an additional barrier against introducing innovative motivation systems based on gamification. METHODOLOGY Acceptance of chosen gamification solutions for HR management systems was tested using a questionnaire on employees’ opinions. Thus the study deals with a potential interest in changes being introduced in management systems, rather than with real reactions to such a change. Uncertainty, a component characteristic of games, has been incorporated into management systems in two ways. Firstly, into bonuses, through the principle that prizes are drawn by those who meet the criterion of “achieving a high level in the game” – i.e. variously valued performance. An analogous gamification system used by a trading company in Poland has been already described (Woźniak, 2015). Secondly, the study considered two BLAP-type solutions based on collecting points – which could then be exchanged for non-material or material prizes. The rewards were comparable with other ways in which an employee could be distinguished, such as appreciation by the owner/manager (oral praise), being given specific types of jobs (e.g. teaching new employees), or being given a


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place on the company bulletin board. For this comparisons 12 forced-choice questions were constructed, where each item compared oral appreciation from the manager or small financial rewards with visible but not connected directly with immanent managerial appraisal, so more “impersonal” rewards. Some of these impersonal items were directly based on BLAP systems (see items in table 1 below, where C, D, and L items used financial rewards based type BLAP gamification and B, E, K – nonfinancial BLAP), some on traditionally used but impersonal rewards. Not gamification items were prepared to compare small financial rewards and specific type of job preferences of respondents. The study was conducted in July 2016 on two groups. The first was a 73-person group of SME employees. All respondents worked, though only half had standard full employment. Among the other half, only 5% had no formal employment contract; the remainder were employed mostly on a minimal wage with rest of their earnings paid informally. Age was differentiated though the respondents were mainly young (60% were aged 18-26, less than 20% were over 35). The group was even gender-wise (33 men, 40 women); only about 20% respondents were educated below a BA level; 2/3s lived in Warsaw. About 1/3 of the companies had no bonus systems; 10% respondents declared they were fully satisfied with the remuneration they received; 30% were quite satisfied. Distribution of satisfaction with wages had Gauss distribution, dividing respondents into two equal halves. In practice, all worked in the services, though only half had direct contact with clients. The respondents thus represented the group of young alumni (half with BA and half with a full university degree), employed in the services in a big city. We can, therefore, assume that their opinions will reflect those of the personnel of certain kinds of SMEs, employed on precariat jobs that are easily accessible to young people in big cities. The second, 100-person group were line workers of a discount chain with over 2000 stores in Poland. Each store employs from several up to 20 people and relationships between superiors and personnel are direct and individualized. Work in a huge organization, however, entails functioning within set procedures, which supplement these direct relationships. Women also predominated in this group (60:40), but the average age was higher (almost 50% were aged 31-40 years, and only 1/3 were younger), and only ca. 1/3 respondents had continued their education after graduating from secondary school. The goal of the study was to verify whether chosen psychological and contextual factors favor accepting game-inspired solutions (deferred

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gratification, in the form of (i) collecting points to be exchanged later for rewards, or (ii) developing their people-management skills, as a step towards managerial career), in comparison with face-to-face praise or small financial rewards. Additionally, respondents were asked to declare their readiness to accept drawn bonuses. Two modifying variables were incorporated: (i) psychological – risk taking aversion and (ii) contextual, i.e. satisfaction with the current motivational system. H.1. A greater percentage of respondents who feature of any of modifying variables will accept drawn bonuses – in comparison with the remainder. The hypothesis 1 (risk taking) assumes that the readiness to take risks favors bringing about change in an important area of the employee role. At the same time, if new solutions are viewed as a change of traditions, they may meet resistance, and thus modify the effect of the readiness to take risks. The second part of the hypothesis (1ii – dissatisfaction with the current remuneration system), favors accepting change, i.e. randomly assigned bonuses. The hypothesis 1ii is consistent with resistance to change theory – it was assumed that people who are dissatisfied with their current remuneration system are more ready to accept changes. H.2. SME employees are less ready than chain store employees to accept deferred gratification type solutions for their work – whether in the form of collecting points to be exchanged for a reward, or other forms of deferred gratification. Hypothesis 2 assumes that a management structure based on direct and personalized contact with one’s superior creates a specific attitude, which makes it difficult to introduce procedures that use rewards which are deferred and guaranteed in only a formal manner. This hypothesis refers to the specific feature of SMEs described above, i.e. the dominant role of owners and their views for shaping events. If such is the case, we may expect the owner’s praise to be more valuable – from the perspective of the employee’s future – than other forms of appreciation. The data described below has been taken from research conducted by Ms. P. Kozak and Ms. M. Stolcman for their M.A. dissertations, written under my direction at the University of Finance and Management in 2016. I would like to thank my former students for giving permission to use their research results.


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RESEARCH RESULTS The hypothesis concerning low interest in drawn bonuses was confirmed using a direct question (What bonus system is in your opinion the best kind of work motivator), supplemented by cafeteria of responses indicating the superior’s role in assigning bonuses (from practically automatic assignment, through discretionary bonuses, up to drawn among people who “meet bonus-assignment criteria”). Only 7 out of 100 respondents from the chain store group preferred drawn bonuses, while 12 preferred regulated bonuses (which can be vetoed by superior but is usually paid). The remainder accepted their managers’ discretionary decisions. As was to be expected, satisfaction with the motivation system differentiated respondents – the group which chose drawing of bonuses had the highest percentage of persons dissatisfied with the current motivation system (6 were dissatisfied, 1 did not respond). Among the 12 supporters of regulated bonuses, only 2 declared dissatisfaction or “difficult to say”, while 8 declared a low level of satisfaction. Among 63 supporters of a mix of regulated and discretionary bonuses, only 1 was dissatisfied with the motivation system and 3 chose “difficult to say”, although half of this group declared an average level of satisfaction. These results – bearing in mind that the chain store company has only a discretionary bonus system – may be interpreted as confirming our hypotheses that dissatisfaction with the bonus system favors accepting drawing bonuses. In response to direct questions, few persons accepted drawing bonuses. Therefore, to verify the dependence between greater readiness to accept drawing bonuses and psychological variables, an additional index basing on two forced choices was developed: choosing between individual (or team) bonus discretionally assigned by the manager, and randomly assigned among those whom the manager considers eligible. 31% were ready to accept drawn of individual bonuses, and 26% accepted drawn of team bonuses (where teams achieved team goals). An index was developed, assigning each respondent with a number from 0-3 depending on these three choices. Those who did not choose any response in favor of random assignment were given 0, and those who preferred random assignment both in the direct question and in the forced-choice questions were given 3 (there were 7 such persons). Readiness to take risks was measured with the use of a projection-type question: Do your friends think you take risks (like risky and uncertain situations)?, evaluated on a 5-point Likert scale. It divided respondents into 3 groups, with 21 high-risk takers (14 responding with “decidedly yes, and 7 with

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“rather yes”), 51 low-risk takers (choosing “decidedly not” and “rather not”), with the third group of 28 people choosing “difficult to say”.

Figure 1. The tendency to choose drawn bonuses among respondents differing as to

readiness to take risks (n=100) (Stolcman, 2016)

As can be seen in Figure 1 above, risk-takers far more frequently choose responses indicating their preference for drawn bonuses, measured with the index developed for this analysis. The relationship is statistically significant, with a rho Spearman correlation of -0,426 – i.e. showing that decreased risk-taking favors rejecting drawing bonuses – measured with a chi-squared test of 33,262 (with 6 degrees of freedom this gives a statistical significance of p = 0,000). Analogously, a strong relationship was shown between negative assessment of current remuneration system (operationalized in several ways: as declarations that salary is inadequate compared with work effort, too low to support a family, and through direct questions) and tendency to accept drawing bonuses measured using the above index. Dissatisfaction with remuneration system was shown to favor accepting a drawn (random) bonus system (data omitted in this article). 73 respondents from SMEs were analogously tested. The index measuring acceptance of drawing bonus assignment was developed basing on two forced-choice questions – one concerning individual and the second team bonuses (data omitted in this article).


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Hypothesis 2 was tested basing on the distribution of responses to forced-choice questions (between A and B), shown in the table below for employees of SMEs (upper figures) and chain of stores (lower figures). Table 1. Preferences of respondents concerning motivation systems (SMEs=73, n=100)

Response A A Response B B

A

Oral appreciation 43 39

Permanent information concerning achievements (e.g. public information board, official announcement among all employees)

30 61

B

Direct appreciation 19 32

Collecting points which can be exchanged for a non-financial reward (e.g. additional training, diploma)

54 68

C Indirect appreciation 15

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Collecting points which can be exchanged for a financial reward

58 73

D Being distinguished on public information board (prized employees)

3 12

Collecting points which can be exchanged for a financial reward

70 88

E Being distinguished on public information board (prized employees)

4 32

Collecting points which can be exchanged for a non-financial reward (e.g. additional training)

69 68

F Oral appreciation 31

43

Being assigned a new employee, who is to be taught the job

42 57

G Oral appreciation 12

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The possibility of managing a small team during chosen tasks

61 63

H Small financial reward 8

42

Managing a small team during chosen tasks and the possibility of promotion

65 58

I Work on an interesting task which helps develop competencies

34 62

Small financial reward 39 38

J Oral appreciation 26

43

Responsibility for teaching new employees, with no change in salary or work contract

47 57

K Oral appreciation 16

31

Obtaining points for excellent work at monthly work appraisals; with time these can be

57 69

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Response A A Response B B

exchanged for non-material rewards (e.g. title of “employee of the month”, additional training, etc.)

L

Oral appreciation 16 29

Obtaining points for excellent work at monthly work appraisals – when very many of these have been collected, they may be exchanged for a material reward

57 71

Source: Authors’ elaboration based on data from (Stolcman, 2016; Kozak, 2016)

As can be seen from table 1, oral appreciation is relatively rarely chosen as a motivator and “loss” against every BLAP-type gamification (both material and non-material rewards). It is only chosen above appreciation from among other employees on “information boards” – and here the difference between SME and chain store employees are the greatest, as the former seem to assess this kind of appreciation slightly higher. At first glance, the preference of chain store employees for non-material prizes (oral appreciation) in comparison with the chance to develop new competencies and career paths seems astonishing; this can be explained by the higher age of this group of respondents. To summarize, contrary to hypothesis 2, the differences between these two groups are not large, and for 2/3 of the employees, BLAP-type solutions can be envisaged as an acceptable form of appreciating work, no worse than oral appreciations which are used on an everyday basis in small companies. DISCUSSION AND CONCLUSIONS The above text analyses potential barriers that may be encountered when introducing gamification in small businesses, on account of the role played in them by the owner. As the employees of such enterprises are not used to formal HR procedures, they may have a negative attitude towards applying gamification to motivational systems – both in the form of collecting points exchangeable for material or non-material rewards, or based on rewards that are randomly assigned (drawn from) among a pool of employees the owner considers eligible. Two examples of using gamification in motivational systems were shown. The first assigns points for realizing chosen tasks, which can then be exchanged for material or non-material rewards (BLAP-type gamification). The second


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incorporates elements of a random-based nature into traditional, individual or group bonus systems, in which superiors classify employees to a group eligible for distinction on a discretionary or the target achievement basis. When prizes are drawn, their value can be increased (which in turn should increase their motivational function). Additionally, bonus costs can be planned at the same time as goals are set, so we can expect this kind of solution to be convenient for enterprises. A questionnaire was conducted on 100 employees of a chain of stores who work in small teams based on personal relationships, and 73 employees of SMEs. The results show that psychological variables (such as willingness to take risks) and organizational context (dissatisfaction with current bonus system) exert an influence on the level with which drawn bonuses are accepted. Acceptance of random assignment is not high in the case of any of these variables, but nowhere does it reach zero values. We have therefore shown that incorporating gamification into motivational systems in the form of randomly drawn bonuses is possible, and acceptable for some employees of companies in which “the owner/manager/director” plays a central role, and in which relationships are personalized. The study also shows that in both groups, most employees prefer being distinguished by obtaining points, rather than being orally appreciated – whether these points are exchangeable for rewards of a material or non-material nature. This signifies that, regardless of whether they are used to procedures, both groups are also ready to accept BLAP-type gamification rewards as an additional type of rewards. This suggests that the main barrier to introducing gamification in SMEs is a lack of managerial knowledge – and not the fact that their employees are not used to formalized procedures or prefer individual relationships with their managers. Data from an incidental group of respondents cannot be a strong argument in favor of SME employees’ openness to gamification solutions; however, it gives a more optimistic outlook on the possibility of incorporating gamification in these companies, than theoretical analyses would suggest. It should be emphasized that the study – even if its results can be generalized – does not provide information concerning SME employees’ real reaction towards the gamification, or concerning the motivational effects of introducing gamification solutions into remuneration systems. The study is based on opinions concerning a hypothetical situation, and so can only provide an argument in favor of attempting to verify whether similar results would be obtained in the case of real experience with such motivational systems. As

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basing on hypothetical opinions is the main limitation of the current study, it should be treated as an invitation to conduct further experiments.

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HOW DIGITALIZATION CHANGES THE INTERNATIONALIZATION OF ENTREPRENEURIAL FIRMS: THEORETICAL CONSIDERATIONS AND EMPIRICAL EVIDENCE Andreas M. WITTKOP1 Katrin ZULAUF2 Ralf WAGNER3 ABSTRACT The internationalization of firms is predominantly analyzed and explained considering observations from a pre-digital business environment. Thus, the applicability to digital ways of doing business needs to be challenged. Recent literature on the internationalization of digital firms attempts to adapt existing international business literature to the digital market. However, these studies consider internet-based companies predominantly as a homogeneous group. It is a popular opinion, that digital internationalization is faster, cheaper and easier for digital companies. The purpose of this article is to develop a comprehensive understanding on how internet-based companies internationalize in the digital market, and why their internationalization processes differ from each other. Based on an overview on the specificities of the digital marketplace, their impact on the applicability of traditional international business theory, it is developed a differentiated view on digital internationalization. Subsequently, the theoretical results are compared with primary data derived from six semi-structured interviews with digital companies. So far, firm internationalization theory focused on variables like the internal capabilities, resource endowments or efficiencies of the value chain. It is shown, that even if these theories still have a high impact on the internationalization strategies of internet-based companies, especially in the extremely dynamic digital market, also further variables need to be considered. Additionally, to the impacts of the value creation and delivery infrastructure (e.g., firm specific capabilities and resources), also the specific way of creating value and the individual customer interface of digital businesses play a key role in digital internationalization. KEYWORDS Digitalization; internationalization strategy; business models.

1 University of Leon, Campus de Vegazana, S/N, 24071, León, Spain, [email protected]. 2 University of Kassel, Mönchebergstr. 1, Kassel, Germany, [email protected]. 3 University of Kassel, Mönchebergstr. 1, Kassel, Germany, [email protected].


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INTRODUCTION Innovations in modern information- and communication technologies are revolutionizing the business environment. The internet provides challenges and opportunities to new and existing companies, which are conducting business in innovative ways with a growing share of international activities. The new marketplace on the internet –digital market– differs from the traditional market environment. Firms building up their business in the digital market are internet-based companies (IBCs). Their value creation and delivery are based on the internet, which means that if the servers would stop working, these companies would not be able to create and deliver the value that it is offering to its customers (Brouthers, Geisser & Rothlauf, 2015; Hazarbassanova, 2016). Two research streams are identified: the traditional international business theory and the more recent international entrepreneurship (IE) approaches. The former ones were developed on the basis of observations, made more than forty years ago in pre-digital markets. At this time, international business was mainly a privilege of big multinational enterprises (MNEs). Notably, studies of MNEs confirmed strong resource endowments and success in the domestic market as a prerequisite for international success (Johanson & Vahlne, 2011). The latter approaches capture the fact that with the introduction of the internet, competing with MNEs, also small- and medium-sized businesses started to engage in international activities–frequently immediately after their foundation. IE approaches focus mainly on internal reasons, capabilities, and networks of a company as reasons for such behavior (Andersson, 2011). Digitalization is disruptive. This means that the competitive conditions for IBCs are profoundly different from the pre-digital era. This leads to the first research question: (i) How does the digital market differ from the pre-digital market? The changed conditions impact the characteristics of IBCs towards their pre-digital counterparts. Existing international business literature is based on the observations of an entirely different type of companies (usually pre-digital MNEs) acting under entirely different market conditions. This causes the second research question: (ii) Is pre-digital international business literature also applicable to IBCs and which adaptation may be necessary? Studies investigating the impact of digitalization on the internationalization process consider digital companies as a homogeneous group (Brouthers et al.,

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2015; Hennart, 2014). This approach is questionable for simple reasons. Digitalization has an impact on almost any sector of the global economy and changes the business practices profoundly. Research question 3 is, therefore: (iii) how should a theoretical framework for a differentiated analysis of IBCs look like? The answer to the final research question then clarifies: (iv) in how far do differences among IBC’s styles of conducting business, have an impact on their internationalization processes? It will be answered both through theoretical argumentation and through an empirical research.

THEORETICAL BACKGROUND Digitalization and its impact on IB theory Digitalization fundamentally changes the business practices, and challenges the competitive advantages of well-established businesses and provides opportunities to new businesses. The ‘digital value’ delivered to consumers differs from physical goods, in which most of the IB literature is rooted (Afuah, 2003; Autio & Zander, 2016). The most relevant changes are: (i) changing determinants of competitive advantages. For digital goods, the value chain efficiencies matter less to achieve a competitive advantage than for physical goods, where this factor took a key role (Mahnke & Venzin, 2003). Digital goods can be copied, adapted to the consumer needs easily without high additional costs. Other factors, like the uniqueness of the product, as well as the brand reputation, are much stronger determinants of competitive advantages in the digital markets. (ii) reduced transaction costs. Processes can be much more standardized and the internal and external communication and coordination is facilitated. Examples are lower costs of customer relationship management because of automated software, facilitated coordination of purchase and delivery logistics because of virtual delivery channels and automated ordering systems, facilitated governance and control mechanisms through digital online accounting (Bunduchi, 2005). (iii) reduced asset- and location-specificity. Digital businesses can become important players in the market, even if they cannot relate back to big capital supplies, and even if they are not physically present in a sales location (Autio & Zander, 2016). (iv) outsourcing and offshoring. IBCs can compensate their resource limitations by outsourcing and offshoring parts of their value chain, and can still be very


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profitable because they are allowed to scale up rapidly, while not being bound to capacities of physical factories (Lewin & Volberta, 2011). Considering the conditions in the digital market, it is questionable to which extent traditional and international entrepreneurship theories explain the behavior of digital companies and if they provide a sound basis to derive recommendations. Characteristics of the digital market promote the internationalization of smaller and younger companies despite their limited budget to internationalize early and on a wide scale. Notably, traditional theories (e.g., internalization theory, the eclectic paradigm, or the internationalization process model), were developed on the basis of observations on large MNEs, often more than 40 years ago. It can be found a trend towards a weakening of the applicability of traditional theories like the internalization theory and an enforcement of the dynamics suggested by international entrepreneurship theories, e.g., knowledge-based view, resource-based view and the network theory. Nevertheless, the traditional theories help to understand the internationalization of IBCs. The business model Recent approaches claim the applicability of IB theory by relating to a homogeneous group of IBCs. Notably, this assumption cannot sustain considering the ubiquitous digitization of the global economy (Brouthers et al., 2015). A conceptual tool to differentiate firm internationalization strategies of IBCs from each other is needed. The business model concept describes how companies are doing business and provides a structure for a heterogeneous perspective on IBCs. However, literature still does not agree on a single, clear definition of the function and components of the business model (BM). We follow the definition of Osterwalder and Pigneur (2005): “A business model is a description of the value that a company offers to one or several segments of customers and the architecture of the firm and its network of partners for creating, marketing and delivering this value to generate profitable and sustainable revenue streams.” As a conceptual tool, the business model allows a more structured decision-making in the digital business environment. It can be considered as an additional theoretical layer in between the aggregated information of strategy, which is too unspecific and the detailed information of the business processes, which is too complex to categorize IBCs in a purposeful manner.

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Scholars identify up to twenty-four different items, belonging to up to eight different general components of a business model. Approaches are different in their purpose to either provide a model for the digital market or one with general applicability (Richardson, 2008).

Figure 1. The business model components

In this work, eight items organized into three essential categories are considered (see Figure 1): the value proposition, the value creation and delivery infrastructure, the value capture / financial aspects. (i) The value proposition describes the value of the product or service offered. It explores, which customer need is satisfied and why customers are willing to spend money for the product or service. Therefore, it clarifies the overall approach to the competitive advantage (Richardson, 2008). To distinguish IBCs in a differentiated analysis, the following items may be applied to build a segmentation on content, commerce, context, and connection. A differentiation of the digital customer interface component of the BM can be the approach of dividing the customers into digital tribes. Following this, companies are differentiated considering the target customer groups, which are not segmented using demographic data, but the interests, size, loyalty and wealth of the segment. The value creation logic is a way to categorize value propositions and is therefore determined as the result of product value and the customer interface. The three general types of companies according to the value creation logic are long-linked, mediating and value shop (Stabell & Fjeldstad, 1998).


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The value creation logic results from the product value and the customer interface. It does not have to be adapted to the digital market environment, as it only divides the IBCs into three categories. It appears to be useful for developing a structured understanding in how IBC’s internationalization strategies can be distinguished from each other. (ii) The value creation and delivery infrastructure explain the architecture of processes, which allow a business to generate a better value more efficiently than the competitors do. In addition to the internal sources of a competitive advantage, the resources and capabilities, it contains the structure of the external links of a company like suppliers, distributors, collaborates (Richardson, 2008). This component does not have to be adapted to the digital market. The key capabilities and resources are the main factors to describe the value creation architecture, and the external links may increase in importance, as outsourcing and offshoring are more frequently used. (iii) The value capture component of the BM is essential because a sound value proposition, a highly efficient value creation and delivery infrastructure are not sufficient for maintaining a profitable business in a sustainable way. Challenging for companies in the digital markets are consumers who often expect the non-specific offerings to be offered free. Magazines, music and social networks are expected to be financed in other ways than by a direct payment. The value capture component of the business model clarifies the revenue model and the financial structure of the business in the economic model (Osterwalder et al., 2005). The impact of the business model components on IBC internationalization Based on the theoretical basis provided before, it is possible to develop a comprehensive understanding on how digital companies are internationalizing, and why their internationalization processes differ. Hennart (2014) questions the assumptions of traditional IB theories, suggesting that the internationalization process of young and fast internationalizing new ventures (INV) is rather due to their value proposition than to their internal resources, knowledge capabilities, personal experiences or external networks. His idea is that INVs do not have to adapt their method of customer acquisition as they are often targeting internationally similar niche markets. The lowered need for adaptations eliminates the process of incremental knowledge acquisition, which was, for example, the basis for the assumptions of the internationalization process model suggested by Johanson and Vahlne (1977,

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1990). This is why INVs may even internationalize without planning it proactively. Hennart (2014) calls these companies ‘accidental internationalists’. The second approach is the ‘lean internationalization’ approach of Autio and Zander (2016). It shows how young digital companies follow the “doing rather than planning” approach. Digital companies are often not conducting market researches before they start their international expansion. The costs and the risk of a failure decreased due to digitalization so that the advantage of ‘trying’ the market entry is considered as superior compared to a long and costly, incremental market entry (Autio & Zander, 2016).

THE IMPACT OF THE INDIVIDUAL BM COMPONENTS Based on the identified factors that differentiate IBCs from each other, it is now investigated on the impact of each BM component on the internationalization strategies. The impact of the value proposition Out of the three dimensions of the value proposition introduced above, the value creation logic (Stabell & Fjeldstad, 1998) is considered to be the most appropriate tool to develop a structured understanding. It allows differentiating IBCs in into three categories, and still, includes the product value proposition and the customer interface into the segmentation. A differentiation based on the product value or the customer interface results in too many sub-categories, which hinder to develop a ‘structured’ understanding, compared to the individual theories. Hazarbassanova (2016) conducted a case study on the impact of the value creation logic on the internationalization of firms. Impact of the value chain logic Companies of the value chain logic category, strive for an optimization of their production processes and a decrease of costs through scale economies. This usually results in a high level of standardization of their processes (Stabell & Fjeldstad, 1998). A pre-digital example for a value chain logic is traditional manufacturing firms, which transfer inputs to outputs. Their competitive advantage is due to optimizing and standardized value chains and scale efficiencies. The customers are not involved in the production process and the communication with the customer is rather indirect. The internationalization is incremental and tends to internalize operations if TAC can be saved. Because of


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the high similarity to traditional manufacturing firms, Hazarbassanova (2016) interferes also a similar internationalization behavior to those big multinational manufacturing firms, on which the ‘traditional’ international business theory is based on. Impact of the mediating network logic Companies with a mediating network logic are often ‘co-creating’ value together with their users. Additionally, to the value offered through the infrastructure of the internet platform, also the network of interconnected users itself represents a value (Stabell & Fjeldstad, 1998). A dynamic affecting strongly on the internationalization of mediating network firms is the liability of outsidership (Brouthers et al., 2015). It is necessary that a network reaches a critical number of users so that the growth of the network starts to be self-sustaining. For networks without any international context, it can be hard to internationalize, because the part of the competitive advantage deriving from the number of customers is not transferable and will start from zero again for every market entry. The pool of users may then be seen as a resource and the resource-based view may be applied – a company will internationalize as much as it is able to transfer its competitive advantage to the new markets. Impact of the value shop logic Companies belonging to the value shop logic are generating value through the development of customized solutions for individual problems of directly contacted customers. Examples of this type of value creation logic are consulting firms (Stabell & Fjeldstad, 1998). It is hard to standardize the underlying processes because they can seldom be formalized and codified. The competitive advantage of value shop firms is generated either through specific knowledge intensive processes or through a high reputation (Mahnke & Venzin, 2003). Offerings need to be adapted to local markets and usually cannot be outsourced as the competitive advantage based on tacit, internal knowledge that is hardly transferable to external third parties and contains a high leakage-risk (Hazarbassanova, 2016). The impact of the value creation and delivery infrastructure Value creation and delivery infrastructure are the architecture of processes, which together create the competitive advantage. The value proposition and the process infrastructure are usually strongly related. However, companies do not always exist as theory would suggest and the impact of the two components should be analyzed separately. Value creation and delivery

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infrastructure are subject to many of the traditional international business theories and international entrepreneurship approaches. The impact of the resources and capabilities of a company are described by the resource-based view and the knowledge-based view (Knight & Cavusgil, 2004), as well as the dynamic capabilities approach (Teece, 2007). The network-based view (Afuah, 2003) relates to the partners and supplier item. Impact of the value capture Financial aspects and value capture impact only indirectly on the internationalization of IBCs. The endowment of capital resources is certainly a key factor (e.g., for the decision for or against external funding). However, the endowment of financial resources is already accounted in the item of ‘capabilities and resources’ of the process architecture. It becomes obvious, that the individual business model components critically influence the firm. The new approaches pointing out the importance of the value proposition contribute to the understanding of the digital internationalization. The existing theories mainly focus on the items of the process architecture, internal capabilities, and resources, as well as external network links. The theories combined above are now organized in the structure of the business model concept. Through the structure of the business model concept, the information was brought to a comprehensible level, which can be applied to further research to create or adapt business models based on internationalization purposes.

EMPIRICAL EVIDENCE Primary data was collected in six semi-structured interviews with IBCs. The sample consists of two firms per value creation logic. We did a qualitative content analysis applying the Mayring method. First, the business model was determined and then the corresponding internationalization process (motivation, market selection, market entry, speed) was analyzed. Figure 2 summarizes the case-specific analysis. In green, it is the market behavior of the value chain firms, in blue the behavior of the mediating network firms, and in orange, those of the value shop firms. Especially the


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market selection and the speed show dependencies to the type of value creation logic.

Figure 2. Summary of the case-specific analyses

‘Value chain’ firms seem to show an importance towards an internationalization process to countries of which they have knowledge on. Aviclaim chose to take the first step to Germany. The entrepreneurs preferred the neighbor country so that they can better get in contact with the local partners to which they outsourced the location-specific activities. Digitization, therefore, did not totally diminish the importance of physical distance. In addition, the CEO of Aangetekendmailing.nl had high knowledge of the market potential in Germany. Both companies just internationalized after their business processes worked in the domestic market. This explains the speed of the internationalization, but dependent on the moment in which the companies considered their processes as stable. Notably, ‘mediating network’ firms also followed strategies that were in line with the theoretical assumption, that network companies will not internationalize fast. Both of the companies do not have an actively ongoing internationalization process.

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Vitabook did not start any internationalization at all. Supahands.com is slowly proceeding, even if there are big plans. The case-specific analysis showed that network firms at hand have difficulties to internationalize respectively to keep on proceeding with their internationalization once they established their user base in the target markets. The network firms show a particular way to internationalize and the biggest issue is the liability of outsidership. A network cannot provide any value to the customers if it has not reached a critical mass of users so that the network growth becomes self-sustaining (Brouthers et al., 2015). Both ‘value shop’ firms internationalized immediately after their foundation, and they are both active in more than five foreign markets. They both are not actively pursuing to target one specific market, but rather follow their clients and the next best economic opportunity. Basebuilder.com tried to target specific markets and to offshore the sales department in order to have a better local sales relationship with potential clients. However, this did not work out and the respondent from basebuilder.com explained these phenomena with the fact that third-party salespeople are not able to convey the potentials of the customized consultancy based on the online IT-software of the company to potential customers. This is in line with the theoretical argumentation, that tacit knowledge is hardly transferable to third parties.

CONCLUSION The contribution of this study is fourfold. (1) The conditions in the digital market environment change the strategical approaches of the firms. (2) These new approaches are also reflected in a changed approach to internationalization, which especially requires an adaptation of MNE-based theories like the Uppsala approach or the internalization strategy. (3) The business model can help to provide a structure to the big number of variables in the IB theory. (4) A differentiated analysis of IBC internationalization shows that IBCs need to be considered as a heterogeneous group. It has been connected the most relevant contributions to the three research fields of digitalization, internationalization and business model research. Certain components of the business model of IBCs affect the heterogeneous internationalization patterns of IBCs. The relation of value proposition towards


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internationalization strategies has a strong evidence but is not explained by the traditional or international entrepreneurship theory. The individual internationalization behaviors are determined by both the value proposition, and the value creation and delivery infrastructure component. This article structures a complex and dynamic strategical topic, with substantial relevance for theory and practice. Connecting the research fields of digitalization, international strategy and business models integrates their separated innovative insights into a common understanding of differentiated

digital internationalization. REFERENCES

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Effectuation. Journal of Small Business and Enterprise Development 18(3), 627–643. Autio, and Zander. 2016. Lean Internationalization. Academy of Management

Proceedings 1, 17420. Brouthers, K.D., Geisser, K.D., and Rothlauf, F. 2015. Explaining the Internationalization

of ibusiness Firms. Journal of International Business Studies 47(5), 513–534. Bunduchi, R. 2005. Business Relationships in Internet-based Electronic Markets: The

Role of Goodwill Trust and Transaction Costs. Information Systems Journal 15(4), 321–341.

Coase, R.H. 1937. The Nature of the Firm. Economica 4(16), 386-405. Hagen, B., and Zucchella, A. 2014. Born Global or Born to Run? The Long-Term Growth

of Born Global Firms. Management International Review 54(4), 497-525. Hazarbassanova, D.B. 2016. The Value Creation Logic and the Internationalisation of

Internet Firms. Review of International Business and Strategy 26(3), 349-370. Hennart, J.-F. 2014. The Accidental Internationalists: A Theory of Born Globals.

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Model of Knowledge Development and Increasing Foreign Market Commitments. Journal of International Business Studies 8(1), 23–32.

Johanson, J., and Vahlne, J.E. 1990. The Mechanism of Internationalisation. International Marketing Review 7(4), 11-23.

Knight, G.A., and Cavusgil, S.T. 2004. Innovation, Organizational Capabilities, and the Born-Global Firm. Journal of International Business Studies 35(2), 124-141.

Lewin, A.Y., and Volberda, H.W. 2011. Co-evolution of Global Sourcing: The Need to Understand the Underlying Mechanisms of Firm-Decisions to Offshore. International Business Review 20(3), 241-251.

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Mahnke, V., and Venzin, M. 2003. The Internationalization Process of Digital Information Good Providers, Management International Review 1, 115–143.

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AN EMPIRICAL ANALYSIS OF ENTREPRENEURIAL ACTIVITY DETERMINANTS IN THE EUROPEAN UNION COUNTRIES Valentina Diana RUSU1 Angela ROMAN2

ABSTRACT The entrepreneurship has a major role in the economic development of a country and also for job creation and innovation. The entrepreneurial activity is influenced by many factors, understanding and examining these factors is very important for identifying the adequate measures that can support and develop the entrepreneurial activity. The economic recession and the significant increase in unemployment, in the context of the recent economic crisis, have renewed the researchers’ interest on the role of entrepreneurship and its determinant factors. Starting from those stated above, through this paper, we aim to empirically identify the key macroeconomic and business environment factors that have an impact on the dynamics of entrepreneurial activity and evaluate their influence in the EU countries, for the period 2002-2015. As independent variables, we took into account 14 macroeconomic indicators and of the business environment that could have an impact on the entrepreneurial activity. The results of the empirical research indicate that a large part of the independent variables has a significant impact on entrepreneurial activity in line with the results of other empirical studies. Thus, the dynamics of entrepreneurial activity is significantly influenced by the annual percentage growth rate of GDP and GDP per capita, tax rates, fear of failure, entrepreneurial Intentions, perceived capabilities, perceived opportunities and cost of business start-up procedures. Overall, identification and knowledge of key macroeconomic and business environment factors that influence entrepreneurial activity are of interest to decision makers at various levels in order to adopt and implement appropriate measures that stimulate and promote entrepreneurship. KEYWORDS Entrepreneurial activity; businesses; EU countries; economic development; panel data analysis.

1 Department of Interdisciplinary Research in Social Sciences and Humanities, Alexandru Ioan Cuza University, Lascar Catargiu Street, no. 54, Iasi, 700107, Romania, [email protected]. 2 Faculty of Economics and Business Administration, Alexandru Ioan Cuza University, Carol I Boulevard, no. 11, Iasi, 700506, Romania, [email protected].

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INTRODUCTION The entrepreneurship has a major role in the economic development of a country but also for job creation and innovation. There are many theoretical and empirical studies that approach the importance of entrepreneurship but also its impact on economic growth. We can also highlight the recent preoccupations of the public authorities from European Union countries on promoting the entrepreneurial activity in order to sustain the development of national economies. The entrepreneurial activity is influenced by many factors, among which stands out in particular: the level of development of national economy, the institutional environment, as well as national cultural specificities (Wennekers et al., 2005; Van Stel et al., 2007; Danakol et al., 2014). Starting from those stated above through our research we aim to empirically examine the impact of some of these factors, and the results of our investigation could be useful to decision-makers at different levels, concerned to identify adequate measures in order to support and develop the entrepreneurial activity. After the recent economic crisis, the economic recession and the increase of unemployment have brought again to the attention of researchers the problem of the determinant factors of entrepreneurship. In this context, our paper aims to identify the main determinant factors of the level of entrepreneurial activity for 18 EU member states, using data for the period 2002-2015. For the analysis, we consider 14 macroeconomic indicators and of the business environment that could have an impact on the entrepreneurial activity. In order to reach our objective, we have structured our study as follows: section 2 presents a brief literature review, focusing on identifying previous findings regarding the main factors that influence entrepreneurial activity; section 3 presents the data, the variables and also the econometric methodology used; section 4 highlights and discusses the main results obtained, and the last section presents the conclusions. LITERATURE REVIEW The analysis of the literature highlights the existence of a significant number of studies that focus on identifying the factors that have an important influence on entrepreneurship in different countries or groups of countries. One of these studies is the one made by Grilo and Thurik (2004). The authors realize an empirical analysis on a sample of countries (including 15 EU member states) focusing on the impact of certain explanatory variables (socio-demographic


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variables, perception and preference variables) on entrepreneurship. Other studies (Thurik et al., 2008) examine the relation between self-employment and unemployment rates for a panel of 23 countries, in the period 1974-2002. The results obtained indicate that this relation is both positive and negative; the changes in unemployment rates having either a positive or a negative impact on subsequent variations of self-employment rates. The studies mentioned above, along with other studies (Shane, 2008; Vidal-Suñé & Lopez-Panisello, 2013) have also tested the effects of Gross Domestic Product and Gross Domestic Product per capita growth on the entrepreneurial activity. The results showed that these indicators are important determinants of entrepreneurial activity because an increase in income can lead to an increase in the demand for goods and services that stimulate entrepreneurial activity. From another point of view, Shane (2008) showed that the variation of GDP has a different effect on entrepreneurship. He found that for richer countries, the rates of self-employment were lower, because when the incomes are rising people find more attractive employment options than running their own businesses. In poorer countries there exist fewer high-paying jobs and many people turn to entrepreneurship to earn a living. Using different regression methods, Kim et al. (2010) realized an empirical analysis on the impact of public policy (finance, labor, and tax policy) on entrepreneurial activity in the 28 countries of OECD (of which 17 EU member states). Some of their main findings regard the fact that the government expenditure on economic affairs and education have an important role in promoting entrepreneurship, and that an increase in the public expenditure for stimulating start-ups increases the level of entrepreneurial activity. Bosma and Schutjens (2011) also conducted an empirical analysis of the national and regional conditions on entrepreneurial attitude and activity for 127 regions across 17 European countries, for the period 2001-2006. Their results indicate the importance of certain economic and institutional factors, but also of demographic characteristics on the variations of entrepreneurial attitude and activity. More recent studies (Albulescu & Tămăşilă, 2014; Sayed & Slimane, 2014) empirically analyze the economic and institutional determinants of the entrepreneurial activity. According to their results, the most important determinants of the entrepreneurial activity are represented by the stage of economic development, population growth, and employment, the level of education, financial development, macroeconomic stability and technological development.

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Our study makes a significant contribution, completing the scientific literature in the field by supplying empirical evidence on the key determinants of the entrepreneurial activity in 18 EU member states, realizing a more extensive analysis and for a recent period, 2002-2015. METHODOLOGY The objective of our analysis is to test if the indicators measuring macroeconomic stability, the perceived abilities of individuals and the attitudes towards entrepreneurship, and the opportunities of starting a firm, have an important impact on the entrepreneurial activity from the European Union countries. Starting from the indicators used by Global Entrepreneurship Monitor (GEM) for measuring entrepreneurial activity we used as a proxy for the level of entrepreneurial activity, the Total Entrepreneurial Activity (TEA) rate. TEA rate represents the percentage of working age population who are either a nascent entrepreneur or owner-manager of a new business. The entrepreneurship can be affected by a series of macroeconomic and business environment indicators, indicators that we have chosen as the explanatory variables of our models. The annual financial data for the explanatory variables and for the dependent variable are obtained from the Global Entrepreneurship Monitor (GEM) database, and World Bank DataBank, for the period 2002-2015, for 18 European Union member countries (Belgium, Croatia, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Netherlands, Portugal, Romania, Slovenia, Spain, Sweden, and United Kingdom). We used only 18 EU countries due to the availability of data for the entire period considered for each indicator. The data from GEM are harmonized for all the national-level indicators so it is easier to make comparisons between countries regarding the entrepreneurial activity. We have included the explanatory variables in three groups: macroeconomic stability variables, perceived abilities and attitudes towards entrepreneurship variables, and variables regarding the opportunities of starting a business. For the first group of indicators, we have considered six variables: GDP, GDP per capita, unemployment, tax rate, inflation and domestic credit to private sector. The growth of Gross Domestic Product (GDP) and Gross Domestic Product (GDP) per capita are important macroeconomic variables influencing the entrepreneurial activity. The importance of GDP per capita on entrepreneurial activity can be explained by the fact that an increase in income can lead to an increased demand for a wide range of goods and services that would stimulate


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entrepreneurial activity, especially new business start-up (Grilo & Thurik, 2004; Vidal-Suñé & Lopez-Panisello, 2013). As a result of our analysis, we expected a positive relationship between GDP per capita growth and entrepreneurship. The variation of GDP has also an important role for entrepreneurship but from a different angle, as shown by Shane (2008). He shows that for richer countries the rates of self-employment have declined, the growth of GDP being negatively correlated to entrepreneurship because when the incomes are rising there appear more lucrative employment opportunities than running own business. In poorer countries there exist fewer high-paying jobs and many people turn to entrepreneurship to earn a living, and in richer countries, people find more attractive employment options than running their own businesses. Unemployment rate (unempl) is another indicator with an important influence on entrepreneurial activity and can affect start-up rates, so, implicitly the entrepreneurial activity. The specialized literature shows that the influence of unemployment on entrepreneurship can be positive or negative depending on macroeconomic conditions (Grilo & Thurik, 2004; Thurik et al., 2008; Bosma & Schutjens, 2011; Vidal-Suñé & Lopez-Panisello, 2013; Sayed & Slimane, 2014). The high rate of unemployment in times of economic recession may have a negative impact on the level of entrepreneurship, through a dramatic fall in demand for goods and services that reduce business opportunities. But, from another point of view, unemployment can have a positive impact because it determines a bigger number of persons to choose to become entrepreneurs, by starting their own business. Another important macroeconomic factor considered as a determinant of entrepreneurial activity is the inflation rate (infl), which also does not have a clear impact on entrepreneurship. Thus, according to some studies (Vidal-Suñé & Lopez-Panisello, 2013; Sayed & Slimane, 2014), if the inflation increases, it can be recorded an increase in business opportunities because a higher level of prices for products and services can lead to increased expectations of the earnings of entrepreneurs. On the other hand, inflation can have a negative impact because it increases costs for starting a business (Salman, 2014). Therefore, the relationship between inflation and entrepreneurship can be either negative or positive. Total tax rate (tax) is another important factor affecting entrepreneurial activity. In accordance with the studies analyzing this indicator (Djankov et. al., 2010; Vidal-Suñé & Lopez-Panisello, 2013; Salman, 2014), high tax rates have a negative impact on entrepreneurship because are an obstacle for starting a

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new business and lead to a decrease in business activity. Thus, we expect a negative relationship between tax rates and entrepreneurial activity. Between the most important factors affecting the entrepreneurial process, we find the ease of access to finance (dcps). Taking into account the fact that in the European countries the credits obtained from banks are the most important source of external financing of the enterprises, we consider as an independent variable the percent of the domestic credit to private sector offered by banks. An increase in the share of domestic credit to private sector offered by banks may reflect and easier access to the firms to bank financing, which has a positive impact on entrepreneurship, by stimulating new business start-up and sustaining the development of firm’s activity (Aghion et al., 2007; Vidal-Suñé & Lopez-Panisello, 2013; Sayed & Slimane, 2014). Thus, we expect a positive sign of the relationship. Entrepreneurship is determined also by the abilities of individuals and their attitudes towards entrepreneurship. The variable perceived capabilities (capab) measures the skills and knowledge that the people wanting to start a new business consider they have. If a large number of people are confident in their abilities to run a business, then they will be encouraged in setting up new businesses. So, for this variable, we expect a positive sign. The same sign we expect for the variable perceived opportunities (opport), which represents the percentage of people that see good opportunities to start a firm in the area where they live. In accordance with Albulescu and Tămăşilă (2014), the fear of failure (fof) negatively influences the option of entrepreneurs to start-up a new business, while the entrepreneurial intentions (eint) are positively correlated with the entrepreneurial activity in all cases, so we expect a positive sign. The demand for entrepreneurship arises from the opportunities of starting a firm, including business environment characteristics, so for our study, we want to test if the cost of business start-up procedures (cost) (Bosma & Schutjens, 2011) and time required to start a business (time) have a significant impact on entrepreneurship. Some studies (Aghion et al., 2007; Klapper et al., 2006; Klapper & Love, 2011) show that entry of the firms on the market is hampered by bureaucratic barriers such as costs, procedures and time required to start a business and also by employment rigidity. For these variables, we expect a negative influence on entrepreneurship. In order to statistically analyze the data, we first applied unit-root tests on every variable included in the panel data, to test if data is stationary and control for false relationships among variables. After that, we have analyzed


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the descriptive statistic, the correlations between variables and regression analysis using three different models for each category of explanatory variables used. To obtain the estimated coefficients of the regression models, we have used the Pooled Least Square method, by adapting the OLS method to panel data. RESULTS AND DISCUSSION We started the empirical analysis by presenting the descriptive statistics of the variables considered for our study. Table 1 summarizes the results obtained. So we observe that Total entrepreneurial activity (TEA) varies across economies and over time, from almost 2% of the working-age population to 14%, this variation being due to differences in macroeconomic conditions, the ease of formal business registration and other regulatory factors that affect the entrepreneurial environment. In our empirical investigation, we have classified the determinant of entrepreneurship in three groups: macroeconomic factors, entrepreneurship perception, and business registration factors. So, among the economic factors, the domestic credit to private sector has registered the highest variation, from under 1% of GDP in Slovenia in 2004-2008 to 202% of GDP in Denmark in 2009, and a significant disparity which indicates important differences between countries regarding their degree of financial development. Big variations were registered also for tax rate which varied between 76% of commercial profits in Italy, in 2005 to 18% in Croatia, in 2014. From the entrepreneurship perception factors, the perceived opportunities varied the most, from almost 3% of working age population seeing good opportunities to start a business in the area they live in 2009 in Hungary to 71% of working age population in Sweden in 2011. Regarding the third category of factors, we note in particular the time needed to start a new business, which has registered important variations, respective from 2.5 days in Portugal in 2013-2014 to 70 days Spain in 2005.

Table 1. The descriptive statistics of the analyzed variables Variable Min. Max. Mean Std. deviation

Tea 1.88 14.11 6.237 2.186

Gdp -14.35 11.90 0.920 3.640 Gdpc -12.92 12.93 0.703 3.670 unempl 2.80 27.20 9.331 4.628 Infl -4.48 15.40 2.385 2.110 Tax 18.40 76.70 44.535 13.626 Dcps 0.22 202.19 102.932 44.3502

Fof 15.12 61.58 37.058 7.343

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Eint 1.55 31.70 9.564 5.101 Capab 14.58 60.67 42.450 7.775 Oport 2.85 71.49 31.964 14.020

Cost 0.00 22.50 5.820 6.382 Time 2.50 70.00 14.543 13.002

Source: Authors calculations using the data provided by GEM database and World Bank DataBank

The negative values registered for the minimum of GDP and GDP per capita show that the European countries had a period of downturn when their economic development was seriously affected. The most stable indicator from those considered in the analysis was the level of inflation, which had the smallest standard deviation. In order to statistically analyze the data, we first applied unit-root tests on every variable included in the panel data, to test if data is stationary and control for spurious relationships among variables. The null hypothesis is that all variables contain unit-root. This hypothesis was rejected in almost all the cases. For the variables that had a unit-root, we determined the first difference (for unemployment, entrepreneurial intentions and time needed to start a new business) or the second difference (for domestic credit to the private sector), so providing us the basic conditions to perform a regression analysis on this data. We have also taken into account the problem of multicollinearity. The results of the correlation test applied to our variables show that according to the considered reference point (0.80, Bryman & Cramer, 2001) there exists multicollinearity between some of the independent variables which may influence the results of our analysis. Because of these, we have used three separate regression models in order to avoid including in the same regression the highly correlated variables: one with the macroeconomic indicators as explanatory variables, one with entrepreneurship perceptions and one with business registration indicators. This are the models used for the regression analysis: Model 1: TEAit = αi + β1 gdpit + β2 gdpcit + β3 taxit + β4 unemplit + β5 inflit+ β6 dcpsit + εit Model 2: TEAit = αi + β1 fofit + β2 eintit + β3 capabit + β4 opportit + εit Model 3: TEAit = αi + β1costit + β2 timeit + εit

Where αi (i = BE….UK) represents the unknown intercept of every country, t (t = 2002...2015) is the year analyzed, βs are the coefficients for every independent variable and εit is the error term.


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Through the regression analysis, we want to determine which of the considered indicators are among the main determinants of the entrepreneurial activity in the European countries. As we have mentioned, we use three models with one dependent variable: total entrepreneurship rate. The results of the regression model are presented in Table 2. Based on the results of the static regression models and the statistically significant coefficients, we can conclude that GDP, GDP/ capita, and total tax rate are the main macroeconomic determinants of total entrepreneurial activity. Also, fear of failure, entrepreneurial intentions, perceived capabilities, and opportunities are determinants of entrepreneurial activity from the category of entrepreneurial perceptions factors. From the category of business registration factors, our results indicate that the cost of business start-up procedures is an important determinant of entrepreneurial activity.

Table 2. Determinants of entrepreneurial activity in the EU-18 countries Tea Coef. Prob. Constant F-test R-squared

Model 1

Gdp -.588*** .003

9.006***

7.718***

.183 Gdpc .513** .010

unempl -.217 .107

Infl -.012 .866

Tax -.056*** .000

Dcps -.001 .940

Model 2

Fof -.064*** .000 -2.345** 18.428*** .253

Eint .130*** .007

Capab .129*** .000

opport .019** .047

Model 3 cost -.041** .042 6.414*** 2.460* .012

time .010 .400

*, ** and *** denotes that coefficients are significantly at the 90%, 95%, and 99% level. Source: authors calculations using the data provided by GEM database and World Bank

DataBank

For Model 1, we observe that the GDP, GDP per capita and total tax rate are statistically significant factors. GDP per capita has a positive coefficient in agreement with our expectations and also with the findings of Grilo and Thurik (2004) and Vidal-Suñé and Lopez-Panisello (2013). This result can be explained by the fact that an increase of income can determine an increase in the demand for goods and services that would determine an increase of entrepreneurial activity. The coefficient for GDP is negative in agreement with the findings of Shane (2008). He shows that as the nations have experienced

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economic growth, their rates of self-employment have declined. Therefore, the growth of societal wealth is negatively correlated to entrepreneurship because when the incomes are rising there appear more lucrative employment opportunities than running own business. Also, the coefficient for the total tax rate is negative and highly statistically significant. This fact shows that the tax rate is an important obstacle to entrepreneurial activity; increasing tax rates as a percent of commercial profits discourages entrepreneurial activity. This result is in agreement with our expectations and also with the findings of Klapper et al. (2006), Djanko et al. (2010), Salman (2014), Sayed and Slimane (2014). The other macroeconomic indicators considered in the study, respectively unemployment rate, inflation rate and domestic credit to private sector, do not have a statistically significant influence on the entrepreneurial activity of EU-18 countries. For Model 2, all the explanatory variables that define the abilities of individuals and their attitudes towards entrepreneurship have a significant impact on total entrepreneurial activity from the EU-18 countries. So entrepreneurial intentions, perceived capabilities, and perceived opportunities have a positive relationship with entrepreneurial activity. If entrepreneurial intentions are rising, then entrepreneurial activity on the market will improve. Also, if there is registered an increase of the perceptions regarding the opportunities on the market for entrepreneurs and also of own capabilities in running a business then entrepreneurial activity will be stimulated. These results are in accordance with our expectations. In accordance with the findings of Albulescu and Tămăşilă (2014) and with our expectations, the fear of failure has a negative influence on the option of entrepreneurs to start-up a new business. For Model 3, the cost of business start-up procedures has a negative statistically significant influence on total entrepreneurship activity, in accordance with our expectations and the results of Aghion et al. (2007); Klapper et al. (2006), Klapper and Love (2011). If the expenses made when establishing a new business are high, then the start-up procedures will be discouraged. The other variable considered for this model, time required to start a business, does not have a statistically significant influence on entrepreneurial activity. The effects of the considered variables combined for each model had a small impact on total entrepreneurship rate as shown by the R-squared value of


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around 20%. The low values of R-squared show that are also other factors that may have a higher influence on entrepreneurial activity. This is the limitation of our study. So, in further research, we intend to consider other indicators besides those analyzed here, from each category, and from other categories. CONCLUSIONS In this paper, we have investigated the effects of 14 factors identified in the specialized literature on the dynamics of entrepreneurial activity in 18 EU countries considered for the analysis. The purpose of our study was to test the hypotheses and to offer evidence with respect to the impact of the considered indicators of total entrepreneurial activity, by groups of indicators. The empirical results obtained show that a part of the considered indicators are significantly affecting the entrepreneurial activity in the European Union countries and are in accordance with the results of other empirical studies. Thus, total entrepreneurial activity is influenced by three economic development indicators: GDP, GDP per capita and total tax rate. From the category of abilities and attitudes towards entrepreneurship all the considered indicators have an important influence on entrepreneurship: fear of failure, entrepreneurial intentions, perceived capabilities and perceived opportunities. Regarding the third group of indicators, describing opportunities in starting a business, only the cost of business start-up procedures has an important influence on entrepreneurial activity. So, we can conclude that the economic development of a country, the abilities of individuals, their attitudes towards entrepreneurship and the opportunities in starting a business offered by a country are important determinants of the entrepreneurial activity from the 18 European Union countries analyzed. The effects of the considered variables for each model had a small impact on total entrepreneurship rate, showing that are also other factors that should be analyzed. This is the limitation of our study, and in future research, we will consider also other indicators besides those analyzed here. REFERENCES

Aghion, P., Fally, T., and Scarpetta, S. 2007. Credit constraints as a barrier to the entry

and post-entry growth of firms. Economic Policy 22(52), 731-779.

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Albulescu, C.T., and Tămăşilă, M. 2014. The impact of FDI on entrepreneurship in the European Countries. Procedia - Social and Behavioural Sciences 124, 219 – 228.

Bosma, N., and Schutjens, V. 2011. Understanding regional variation in entrepreneurial activity and entrepreneurial attitude in Europe. The Annals of Regional Science 47(3), 711-742.

Bryman, A., and Cramer, D. 2001.Quantitative Data Analysis with SPSS Release 10 for Windows: A Guide for Social Scientists, Revised edition, Routledge.

Danakol, S.H., Estrin, S., Reynolds, P., and Weitzel, U. 2014. Foreign Direct Investment and Domestic Entrepreneurship: Blessing or Curse?. CEPR Discussion Paper No. DP9793.

Djankov, S., Ganser, T., McLiesh, C., Ramalho, R., and Shleifer, A. 2010. The Effect of Corporate Taxes on Investment and Entrepreneurship. American Economic Journal: Macroeconomics 2(3), 31-64.

Global Entrepreneurship Monitor. GEM Key indicators. Available online: http://www.gemconsortium.org/data/key-indicators.

Grilo, I., and Thurik, R.2004. Determinants of Entrepreneurship in Europe. ERIM Report Series Reference No. ERS-2004-106-ORG.

Kim, Y., Kim, W., and Yang, T. 2010. The Effect of Public Policy on Entrepreneurial Activity: Evidence from OECD Countries. ICSB World Conference Proceedings, 01, USA.

Klapper, L., and Love, I. 2011. The impact of the financial crisis on new firm registration. Economics Letters 113(1), 1-4.

Klapper, L., Laeven, L., and Rajan, R. 2006. Entry regulation as a barrier to entrepreneurship. Journal of Financial Economics 82(3), 591-629.

Salman, D.M., 2014. Mediating role of research and development on entrepreneurial activities and growth: Evidence from cross-country data. World Journal of Entrepreneurship, Management and Sustainable Development 10(4), 300-313.

Sayed, O., and Slimane, S.B. 2014. An Appraisal of the Determinants of Entrepreneurship in Developing Countries: The Case of the Middle East, North Africa and Selected Gulf Cooperation Council Nations. African Journal of Social Sciences 4(4), 63-74.

Shane, S.A. 2008. The illusion of entrepreneurship. The costly myths that entrepreneurs, investors and policy makers live by, Yale University.

Thurik, A.R., Carree, M.A., van Stel, A., and Audretsch, D.B. 2008. Does self-employment reduce unemployment?. Journal of Business Venturing 23(6), 673–686.

van Stel, A., Storey, D.J., and Thurik, A.R. 2007. The effect of business regulations on nascent and young business entrepreneurship. Small Business Economics 28(2-3), 171-186.

Vidal-Suñé, A., and Lopez-Panisello, M.B. 2013. Institutional and economic determinants of the perception of opportunities and entrepreneurial intention. Investigaciones Regionales - Journal of Regional Research 26, 75-96.

Wennekers, S., van Stel, A., Thurik, R., and Reynolds, P. 2005. Nascent Entrepreneurship and the Level of Economic Development. Small Business Economics 24(3), 293-309.

World Bank DataBank. Available online: http://databank.worldbank.org/data/home.aspx.


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CREDIT SCORING MODELS FOR MICROCREDITS: A LITERATURE REVIEW María Nela SEIJAS GIMÉNEZ1 Sara FERNÁNDEZ-LOPEZ2 Milagros VIVEL-BUA3 ABSTRACT The provision of microcredits has been considered to have an active role in reducing poverty and promoting economic growth for small entrepreneurs. Many academics have referred to the topic of introducing credit scoring models for managing borrowers’ credit risk. These models have the aim to discriminate between good and bad borrowers, aiding the microfinance institutions in lowering their costs and the timing of the credit granting process as well as enhancing their outreach. Over the last decades, these investigations have covered microfinance institutions from all over the world, focusing on developing countries. Some have the objective of predicting the probability of default of any microcredit, while others refer to attrition or the possibility that microcredits may generate a certain spell of arrears. Microfinance institutions that use credit scoring models appear to be more productive at lower costs, increasing their small business loan portfolio, providing geographically diversified loans and expanding the availability of credit. Since the first credit scoring model for microfinance, there has been an intense development in the literature, regarding the type of explanatory variables considered in the models, the different statistical tools applied and the kind of risks predicted. Currently, innovative approaches in the implementation of credit scoring methodology to microfinance institutions are coming to light. The aim of this paper is to present a literature review of the state-of-the-art on credit scoring models for microcredits, pointing their factors in common, evaluating them critically and establishing the topics of future research. KEYWORDS Credit scoring; microcredits; efficiency; credit risk; micro-entrepreneurs.

1 Universidad de la República, Gonzalo Ramírez 1926 - 11200 Montevideo, Uruguay, [email protected] 2 Universidad de Santiago de Compostela, Praza do Obradoiro, s/n - 15782 Santiago de Compostela, Spain, [email protected]. 3 Universidad de Santiago de Compostela, Praza do Obradoiro, s/n - 15782 Santiago de Compostela, Spain, [email protected].

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INTRODUCTION The term microcredit is used to describe small loans granted to low-income individuals that are excluded from the traditional banking system to help them become self-employed. The origin of microcredits dates back to the 1960s and its main driver was Muhammad Yunus, an economist from Bangladesh who started lending small amounts of money to poor women as an experiment to financially empower them (Dowla & Barua, 2006; Yunus, 2007). This is considered the beginning of microfinance institutions, which with the passing of the years have evolved from socially minded, non-profit organizations to profit-oriented and self-sustaining businesses. Microfinance includes the provision of financial services to low-income people, not only microcredits but also savings, insurance, payments, and remittances. According to the Microfinance Barometer 2016, the microfinance sector has been growing steadily in double digits. In particular, global figures show significant levels of development, with a portfolio of USD 87 billion and 111 million clients in 2014, and an estimated growth of 10% in the outstanding portfolio and 15.8% in borrowers in 2015. Lara, Rayo, and Camino (2010) establish that the importance of microcredit to the poor was recognized for the first time as a basic tool for poverty reduction at the Microcredit Summit in Washington in 1997. Access to finance is a crucial factor that will determine the success of entrepreneurship, in terms of economic and social development. Recently, however, there seems to be a focus on the financial sustainability and efficiency of microfinance institutions, due to a number of events, such as the increasing competition among them, the commercialization of microfinance and availability of technological change. These developments have prompted microfinance institutions to broaden their services and activities (Hermes, Lensink & Meesters, 2011), lowering their costs and also the timing of their credit granting process. Credit scoring is the term used to describe formal statistical methods used for classifying applicants for credit into “good” and “bad” risk classes (Hand & Henley, 1997). The literature has shown that the application of credit scoring techniques in banking practice to grant financing to families and companies, mitigates the credit risk of institutions. In particular, the correct percentage of classification of paying customers as non-payers is improved, predicting the likelihood of default associated with a credit transaction (Schreiner, 2000). According to Thomas, Edelman and Crook (2004), credit scoring offers grantors of consumer credit a far more effective technique of managing risk than is available to lenders in the commercial field. Rhyne and Christen (1999) say that


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credit scoring is one of the most important uses of technology that may affect microfinance, making it possible to extend the boundaries of the financial system to new entrepreneurs. Credit scoring is an explicit and quantitative way to evaluate repayment risk (Dellien & Schreiner, 2005). According to Botero, Mokros, El Tabaa, Ferreyra and Schreiner (2007), scoring alone is not sufficient because as it is based on quantitative models, its predictive power depends heavily on the data that is inputted. Besides, considering the poor quality of borrowers’ databases prevalent in developing countries, the referred authors consider that scoring models for microfinance in these countries are less accurate than those used in developed countries. With regard to other literature reviews on the field, Brau and Woller (2004) provide a review of the broad microfinance literature while Hand and Henley (1997) supply a review of statistical classification methods in consumer credit scoring. The latter establish that the first published account of using a credit scoring system to produce predictions of credit repayment belongs to Durand (1941), through the use of discriminant analysis. However, in the opinion of Allen, DeLong, and Saunders (2004), the most commonly used credit risk measurement methodology is the multiple discriminant credit scoring analysis pioneered by Altman (1968). Since the work of Viganó (1993), credit scoring practices were also incorporated into the microcredits business, extending across different microfinance institutions around the world. In the opinion of Chakravarty and Jha (2013), microfinance credit scoring is not as powerful as scoring for credit card or mortgage lenders, and it will not replace the judgments of loan officers, but scoring does have some power to predict risk and to lower costs after the loan officer makes its best judgment based on qualitative knowledge. In synthesis, scoring complements —but does not replace— current microfinance technologies. The purpose of this article is to provide a written comprehensive survey of the current state of research on the application of credit scoring tools to microcredits extended to small and micro entrepreneurs. In the first place, we present the main strand of research, which consists mainly in classifying between good and bad borrowers, depending on a certain spell of arrears of loans. This line of research coincides with what Schreiner (2000) identifies as pre-disbursement scoring. Then we address another type of topics covered by academics researching this field, including new approaches to the implementation of credit scoring methodology to microfinance institutions. On one hand, we can find descriptive studies that refer to the viability of

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introducing credit scoring in microlending as well as others that include guidelines towards its appropriate design and implementation, commenting also about its evolution and competition with banking services. On the other hand, some studies refer to the evaluation of expanding access to microcredits through the application of credit scoring models. It is also worth reviewing the new body of research that adds social and environmental data to credit scoring models so as to enhance their precision in predicting the repayment behavior of the borrower. Accordingly, the rest of the article proceeds as follows. In Section I, we discuss the main lines of investigation followed by pre-disbursement scoring. Section II covers other types of research that include credit scoring methods applied to the business of microcredits. Section III refers to the new approaches to credit scoring models in this field and finally, we conclude. LITERATURE REVIEW Microfinance institutions provide microcredit to the poorest sectors of the population, using a credit granting methodology, in which the credit analyst plays a fundamental role, based on the use of subjective information derived from a more direct linkage with the venture to be financed. The literature has shown that the application of credit scoring techniques in banking to grant financing to families and companies, mitigates the credit risk of institutions. In particular, the correct percentage of classification of paying customers as non-payers is improved, predicting the likelihood of default associated with a credit transaction (Schreiner, 2000). These techniques involve the intensive use of different statistical models that, are based on a set of qualitative and quantitative information and allow to estimate the risk of default of a borrower. I. Credit scoring for microcredits: main strand of research Credit scoring is a statistical method used to predict the probability that a loan applicant or existing borrower will default or become delinquent (Mester, 1997). In order to present a clear and comprehensive review of the literature on credit scoring for microcredits, our strategy is to divide the review into three distinct areas. Firstly, we identify the main strand of research, related to pre-disbursement scoring, focused primarily on the classification of applicants into good or bad risk classes on the basis of a definition of defaulted or “bad” loans related with a certain spell of arrears. However, there are many other areas of research of microfinance credit scoring which are also important issues in


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microfinance and we present briefly in Section II. Finally, it is worth introducing the new body of research that adds social and environmental data to credit scoring models with the aim to enhance their precision in predicting the repayment behavior of the borrower. According to the type of risk to predict, Schreiner (2000) investigates six possible uses of credit scoring models applied to microfinance institutions. In the first place, he distinguishes the Pre-disbursement scoring, in order to predict the probability that a current loan has an arrears spell of a certain number of days. Secondly, he identifies the Collections scoring, so as to forecast the likelihood that a loan that registers a delay of a certain number of days may reach a longer spell of delays in the payment. Thirdly, he refers to Loyalty scoring, which helps to predict the probability of dropouts, i.e. the likelihood that a borrower with a current loan will not apply for a new loan once the current debt is repaid. This author also identifies Loan term scoring, to forecast the expected term of the next loan from a current borrower and the Loan size scoring, to predict the expected size of the next loan that could be requested by the client. Finally, considering all the information gathered by the former five models, the author presents the Net present value scoring. This model is useful to estimate the expected value of the lender-client relationship, based on the information on the expected gain of a loan with a given size and maturity and on the expected costs of abandonment, defaults and monitors on borrowers with arrears. All these models correspond to risks that the microfinance lender is interested in predicting, that are costly to the institution and over which the lender has no control (Schreiner, 2004). Each research of this nature firstly presents the costly risk to predict -that varies with the lender- and then applies the scorecard to test it. Based on the experience gathered with microfinance institutions in Colombia and the Dominican Republic, Dellien (2003) also refers to Visit scoring, which predicts the probability of rejection after the field visit. Such rejected cases cost loan officers time without producing any revenue. Dellien and Schreiner (2005) use the concept of Poverty scoring, so as to predict the likelihood that a client is poor, tracking the depth of outreach of microcredits. To the best of the author’s knowledge, there are no published researches that address these topics. In Schreiner (2003) a credit scoring model predicts the risk that borrowers will

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not renew their loans from a microlender in Bolivia. He finds that attrition is greater for newer borrowers, women, manufacturers, and those with more past arrears. Risk also depends on the amount disbursed, the loan officer and the branch, and the time since the first loan. Taking into consideration the mentioned investigation, the majority of the studies followed by most academics in the field of microcredits and identified in this review correspond to the line of research of pre-disbursement scoring. In this sense, in order to classify borrowers between “bad” and “good”, each research defines firstly which the risk to predict is. Then a binary variable is defined, with one category representing good applicants and the other one representing bad applicants. For example, in Bensic, Sarlija and Zekic‐Susac (2005), an entrepreneur applying to credit in a Croatian savings and loan association is classified as good if there have never been any payments overdue for 45 days or more, and bad if the payment has at least once been overdue for 46 days or more. On the other hand, the business Vietnamese lender database studied in Dinh and Kleimeier (2007) considers as defaulted those loans with more than 90 days of payment delay or at least three consecutive payment delays. Considering two microfinance institutions from Peru, Lara, Rayo, and Camino (2010) identify that loans having a spell of 30 days of delay are bad loans in one case while in the other, a spell of 15 days is enough for a loan to be considered “bad”. From this study, a series of academic works (Rayo, Lara & Camino, 2010; Lara, Rodríguez & Rayo, 2011; Blanco, Pino, Lara & Rayo, 2013; Cubiles, Blanco, Pino & Lara, 2013; Blanco, Pino & Lara, 2014; Lara, Molina & Holgado, 2014) analyze the effects of the application of credit scoring methodologies in a Peruvian microfinance institution (MFI). This strand of research also corresponds to the considered first investigation in the field, as Viganó (1993) applies credit scoring methodologies to the microfinance industry, in relation to the loan portfolio of micro and small enterprises in the rural sector in Burkina Faso. Dellien (2003) and Dellien and Schreiner (2005) argue about the process of introducing credit scoring techniques into a microfinance institution, based on the experience of a project financed by the Inter-American Development Bank (IADB) in Colombia and the Dominican Republic, in order to strengthen the process of decentralized evaluation of credit risk in branches. Schreiner (2004) developed a credit scoring model for clients of a Bolivian microfinance institution that provides loans to small enterprises, belonging to the commercial or industrial sector. Kim and Sohn (2010) construct a model for predicting the default rate of small and medium-sized enterprises (SMEs) with high technology growth potential in Korea.


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As regards to the credit scoring methodologies, while Viganò (1993) uses the multiple discriminant analysis, Sharma and Zeller (1997) and Zeller (1998) choose the Tobit model and Reinke (1998) constructs a model based on a probit analysis. The binary logistic regression appears to be the most selected model, being incorporated in Schreiner (2003, 2004), Dellien (2003), Dellien and Schreiner (2005), Bensic et al. (2005), Diallo (2006), Dinh and Kleimeier (2007), Van Gool, Baesens, Sercu and Verbeke (2009, 2012) and Kim and Sohn (2010). Vogelgesang (2003) applies a random utility model for constructing its scorecard while Bumacov, Ashta and Singh (2014) select the linear regression. Bensic et al (2005) also consider credit scoring models based on neural networks and CART decision trees and Kim and Sohn (2010) utilize Support Vector Machines and neural networks. Rayo et al. (2010), Lara et al. (2011), Blanco et al. (2013), Cubiles et al. (2013) and Blanco et al. (2014) use credit scoring models based in Multilayer Perceptron and Support Vector Machines in their investigations, making a point of benchmarking their performance against other models which employ the traditional linear and quadratic discriminant analysis and logistic regression techniques, in terms of their predictive efficiency. According to Sundaresan (2009), in the area of microfinance, the concept of group lending is widely practiced, meaning the extension of loans to a group of borrowers who are jointly liable for each of the loans extended to the members of the group. Some authors have addressed the impact of credit scoring tools in group-based lending programs. Sharma and Zeller (1997) and Zeller (1998) use group, community and lender or program characteristics to describe credit risk of joint liability groups. In the first place, the authors analyzed the non-compliance rate of 868 loans, corresponding to 128 groups belonging to three microfinance institutions in Bangladesh. In the latter, Zeller (1998) designed a credit scoring model based on a sample of 168 microcredit borrowers belonging to different groups of borrowers from a microfinance institution in Madagascar. Both studies refer to rural entrepreneurs of the aforementioned countries. In the opinion of Schreiner (2002), as quantified characteristics are less indicative of risk for groups than for individuals statistical scoring probably will not work well for joint-liability groups. II. Credit scoring for microcredits: other lines of research Other lines of research comprising the application of credit scoring models to microcredits comprise descriptive studies and impact analysis evaluations of

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expanding access to microcredits through the application of credit scoring models. As regard descriptive studies, Sundaresan (2009) analyze the changing landscape of microfinance, establishing that providing access to financial services is most likely to develop entrepreneurial skills and opportunities among the poor. Rhyne and Christen (1999), Schreiner (2002), Dellien (2003) and Chakravarty and Jha (2013) refer to the viability of introducing credit scoring in microlending as well as including guidelines towards its appropriate design and implementation and also commenting about its evolution and competition with banking services. In Karlan and Zinman (2011), a random credit scoring design was applied to a population of microentrepreneurs in the Philippines, in order to carry out an impact analysis of the effects of microcredit on borrowers. In a similar vein, Banerjee, Duflo, Glennerster and Kinnan (2013) carry out a random impact assessment of introducing into the Indian market a microcredit product based on group lending. While the results of the first paper were not conclusive of the positive effects on microcredits on entrepreneurs, Banerjee et al. (2013) find out that 18 months later the new microcredit product was introduced in a Manila rural village, it was more likely that entrepreneurs invested more in their pre-existing businesses. On the other hand, spending on durable goods in the neighborhoods studied increased while spending on luxury goods declined. III. New approaches to credit scoring models applied to microcredits Not taking into account either social or environmental issue has been one of the criticisms of credit scoring models applied to the field of microfinance (Van Gool et al., 2012; Yu, Li, Tang, Zhang & Kou, 2015). Serrano-Cinca, Gutiérrez-Nieto and Reyes (2016) show how credit scoring models can include social and environmental data –in contrast, to strictly financial models- to better their creditworthiness assessments. This model also contributes to creating a culture of social and environmental assessment within the institution, especially among the credit officers, translating institutions’ social mission into numbers. This approach was tested in a Colombian MFI, with a clear social mission through microcredit granting. In particular, they propose estimating the social and environmental impacts of their microcredits, calculating the Social Net Present Value (SPNV). Then, calculating this assessment multiplied by the weight given by the MFI, a score is obtained, obtaining four categories: negative social and environmental impact (D); low positive social and environmental impact (C); medium positive social and environmental impact


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(B); and high positive social and environmental impact (A). De Cnudde, Moeyersoms, Stankova, Tobback, Javaly and Martens (2015) complement socio-demographic and credit data that usually are incorporated in retail credit scoring models with social network data, using a dataset from the Philippines. The data used is from Facebook and includes features such as age, place of residence and education level; interest –based data, that captures, for example, the pages a user likes or the companies he worked for and also friendship connections between borrowers on this social network. Main results show that there is a significant difference in the predictive power of each data category, with interest-based data being the most valuable. CONCLUSIONS The objective of this article has been to provide a comprehensive review of the state-of-the-art research on credit scoring models applied to the microcredits business. This is significant because credit scoring is one of the most important uses of technology that may affect microfinance, posing to become a complement to standard microfinance techniques. In this way, credit scoring can increase the small business loan portfolio of microfinance lenders, providing geographically diversified loans, expanding the availability of credit and extending the boundaries of the financial system to new entrepreneurs, which is a key factor to the success of entrepreneurial businesses. REFERENCES Allen, L., DeLong, G., and Saunders, A. 2004. Issues in the credit risk modeling of retail

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microfinance? Evidence from a randomized evaluation. American Economic Journal: Applied Economics 7(1), 22-53.

Bensic, M., Sarlija, N., and Zekic‐Susac, M. 2005. Modelling small‐business credit scoring by using logistic regression, neural networks and decision trees. Intelligent Systems in Accounting, Finance and Management 13(3), 133-150.

Blanco, A., Pino-Mejías, R., Lara, J., and Rayo, S. 2013. Credit scoring models for the microfinance industry using neural networks: Evidence from Peru. Expert Systems with applications 40(1), 356-364.

Blanco-Oliver, A., Pino-Mejías, R., and Lara-Rubio, J. 2014. Modeling the Financial Distress of Microenterprise Start-ups Using Support Vector Machines: a case study.

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Brau, J.C., and Woller, G.M. 2004. Microfinance: A comprehensive review of the existing literature. Journal of Entrepreneurial Finance 9(1), 1-28.

Bumacov, V., Ashta, A., and Singh, P. 2014. The Use of Credit Scoring in Microfinance Institutions and Their Outreach. Strategic Change 23(7-8), 401-413.

Chakravarty, S., and Jha, A.N. 2013. Viability of “Credit Scoring in Microfinance” for Developing Countries.

Cubiles-De-La-Vega, M. D., Blanco-Oliver, A., Pino-Mejías, R., and Lara-Rubio, J. 2013. Improving the management of microfinance institutions by using credit scoring models based on Statistical Learning techniques. Expert Systems with Applications 40(17), 6910-6917.

De Cnudde, S., Moeyersoms, J., Stankova, M., Tobback, E., Javaly, V., and Martens, D. 2015. Who cares about your Facebook friends? Credit scoring for microfinance (No. 2015018).

Dellien, H. 2003. Credit Scoring in Microfinance: Guidelines Based on Experience with WWB Affiliates in Colombia and the Dominican Republic. Women’s World Banking 1(2), 1-15.

Dellien, H., and Schreiner, M. 2005. Credit scoring, banks, and microfinance: balancing high-tech with high-touch. Microenterprise Development Review 8(2).

Diallo, B. 2006. Un modele de “Credit scoring” pour une institution de micro-finance Africaine: Le cas de Nyesigiso au Mali. Séminaire de recherche (discutant Magloire Lanha). 2006 <halshs-00069163>

Dinh, T.H.T., and Kleimeier, S. 2007. A credit scoring model for Vietnam's retail banking market. International Review of Financial Analysis 16(5), 471-495.

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Hermes, N., Lensink, R., and Meesters, A. 2011. Outreach and efficiency of microfinance institutions. World Development 39(6), 938-948.

Karlan, D., and Zinman, J. 2011. Microcredit in theory and practice: Using randomized credit scoring for impact evaluation. Science 332(6035), 1278-1284.

Kim, H.S., and Sohn, S.Y. 2010. Support vector machines for default prediction of SMEs based on technology credit. European Journal of Operational Research 201(3), 838-846.

Lara, J., Rodríguez, M. and Rayo, S. 2011. Un caso empírico en la evaluación del riesgo de crédito de una institución de microfinanzas peruana. Contabilidad y Negocios: Revista del Departamento Académico de Ciencias Administrativas 6(11), 21-30.

Lara, J., Rayo, S., and Camino, D. 2010. La gestión del riesgo de crédito en las instituciones de microfinanzas. Editorial de la Universidad de Granada.


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Lara, J., Molina, V., and Holgado, M. del M. 2014. Manual de procedimientos para la gestión del riesgo de microcrédito. Godel.

Ledgerwood, J. 1998. Microfinance handbook: An institutional and financial perspective. World Bank Publications.

Mester, L. J. 1997. What’s the point of credit scoring?. Business review 3, 3-16. Rayo, S., Lara, J., and Camino, D. 2010. Un modelo de Credit Scoring para instituciones

de microfinanzas en el marco de Basilea II. Journal of Economics, Finance and Administrative Science 15(28), 89-124.

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program design, intragroup risk pooling, and social cohesion. Economic Development and Cultural Change 46(3), 599-620.

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ANALYSIS OF THE EFFICIENCY OF INNOVATION PROJECTS SUPPORTED BY THE EU FUNDS – A CASE STUDY OF POLISH SME COMPANIES Tomasz NOREK1 ABSTRACT In the modern economy, innovation is seen as a key factor in creating a competitive advantage and growth of enterprises. The ability to implement effective innovative projects is extremely important for entrepreneurs. The importance of innovation is reflected in EU policies which provide large funds for member states on the development of innovation. Despite the large interventions based on EU funds, innovativeness of the Polish economy is relatively low (compared with other UE countries and world leaders of innovation). This situation is particularly evident in relation to the SME sector companies. This dichotomy is an important subject of research in the field of the economy the SME sector, and the applications can make a significant contribution to the strategy of building aid policy in the field of innovation financing. The purpose of this article is to analyze the efficiency of the use of EU funds for the development of innovation in the Polish SME sector. The author puts the research hypothesis: (H1) The use of the EU funds does not significantly increase the performance of innovation in the SME sector. In order to verify the hypothesis author conducted to compare the effects of innovative activity of SMEs include the division of the company that benefited from EU funds for the development of innovation and the company that not exploited EU funds. The author used the method of the survey. The study was conducted in the years 2014-2016 on a sample of 400 SME sector. In addition, the author conducted a critical analysis of the literature of the subject and has used commonly available statistics (published by the Polish statistical office, Eurostat).

KEYWORDS Innovation and innovativeness; effectiveness of innovation; SME sector in Poland.

INTRODUCTION A present-day, commonly accepted economic paradigm holds that innovation is the foremost determinant of development opportunities – both on the macro and microeconomic level. In the macroeconomic perspective, innovation is a

1 University of Szczecin, Faculty of Management and Economics of Services, ul. Cukrowa 8, 71 004 Szczecin, Poland, [email protected].


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significant factor of economic growth, whereas, in the microeconomic perspective, innovation directly affects the competitiveness of economic entities (Farinha et al., 2016; Carayannis & Grigoroudis, 2014). The essence, role, and significance of innovation are vastly explored in the academic literature. Innovation is also an important tool of today’s entrepreneurship. While the synergic relationship between entrepreneurship and innovation has been firmly underpinned by a wide range of research (Crumpton, 2012; Zhao, 2005, pp.25-41; McFadzean et al., 2005, pp.350-372), authors draw attention to the relationship between entrepreneurship and innovation within the SME sector (Kreiser et al., 2013, pp.273-291). After a thorough review of academic literature it can be also stated that the role of innovation is particularly emphasized in case of small and medium-sized companies, which reflects the SME sector’s significance for today’s economy: SME generate over 60% of new employments, SME enable transformation of the industry from traditional production forms to advanced technologies (Dibrell et al., 2008, pp.203-218), SME of the sector significantly contribute to the development of the global market (Salvato et al., 2007, pp.282-305), SME play a key role in the development of innovations aiming at the increase of the competitiveness (Low & Chapman, 2007, pp.878-891; Audretsch, 2001, pp.37-51). In the European Union innovation is treated as a sine qua non condition for ensuring the dynamic growth of the entire Union and its competitiveness in relation to other developed global economies. This approach is reflected in numerous EU documents, and in particular in the most important European strategy for smart, sustainable and inclusive growth - Europe 2020. The so-called Innovation Union is one of the flagship initiatives of the strategy, and it aims to improve conditions and access to finance for research and innovation. The main implementation instrument of the Europe 2020 strategy is Horizon 2020 framework program whose target is to create a cohesive innovation financing system: starting from a scientific idea, through research and ending with the implementation of new solutions, products or technologies.

The EU policy and strategy with regard to the objectives, priorities and support

areas of innovation in member states is expressed in EU’s official documents1 and vastly commented on in academic literature (Janger et al., 2017; Camagni & Capello, 2013; Borras & Edquits, 2013, pp.1513-1522). Authors unequivocally point to the fact that support for the innovation of the SME sector occupies a special place in the EU policy, especially in relation to less developed member states (Radas & Božić, 2009, pp.438-450).

1 https://ec.europa.eu/growth/industry/innovation/policy_en. Access on 01.03.2017

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Poland is one of the largest beneficiaries of the EU funds. In the years 2006-2013 enormous support was given to enhance the innovation level of the Polish economy. The majority of investment projects were completed under the Innovative Economy Operational Program financed by the EU and national funds. The total value of investment under this Program was 10,18 bn euro, of which 8,65 bn euro came from the EU budget and the remaining part of the state budget1. The main priorities of the IEOP include investment in innovative ventures (15,08 bn PLN), research and development of state-of-the-art technologies (6,24 bn PLN), R&D infrastructure (5,32 bn PLN), information society – enhancing economic innovation (3,84 bn PLN) and diffusion of innovation (1,82 bn PLN). As of October 2013, under the IEOP 13 277 projects were approved of the total value of 40,15 bn PLN. Present EU financial support for innovation development in Poland (for the years 2014-2020) is realized through Smart Growth Operational Program (with allocation for Poland amounting to 8,6 bn euro), and 16 Regional Operational Programs dedicated to individual provinces (priority axes supporting the creation of innovation and smart regional specialization, allocation of EU funds of 31,3 bn euro)2. Despite this huge financial support, compared to other member states, the level of innovation of Polish economy is still rather low. In the latest European Innovation Scoreboard Poland ranked 23rd among 28 countries surveyed (Hollanders et al., 2016). As it comes to the SII index (Summary Innovation Index) which is a measure of a country’s overall innovative performance, Poland’s score of 0,2917 placed it among the so-called moderate innovator countries. Poland was followed by Romania (0,1796), Bulgaria (0,2415), Croatia (0,2814), Latvia (0,2814) and Lithuania (0,2821). Poland is performing below the EU average in all EIS dimensions, particularly in Linkages and entrepreneurship and Open, excellent and attractive research systems. For most indicators, performance is also below the EU average, with largest relative weaknesses in Non-EU doctorate students, Public-private co-publications, PCT patent applications (in societal challenges), and License and patent revenues from abroad. Relative strengths are in Non-R&D innovation expenditures and Community designs. Performance has increased for most of the dimensions and indicators. High growth is observed for R&D expenditures in the business sector (15%) and License and patent revenues from abroad (15%). Fairly strong declines in performance are observed in

1 www.poig.gov.pl. Access on 12.02.2017 2 www.poig.gov.pl. Access on 15.02.2017


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Innovative SMEs collaborating with others (-12%) and SMEs with marketing or organizational innovations (-9.7%).

The below the average level of innovation of Polish economy has also been confirmed by other research conducted by national, European and global institutions including the Polish Central Statistical Office, Eurostat, and the World Bank. The reason for the continuing low innovation of Polish economy in spite of huge innovation funding is undoubtedly an issue that urgently calls for research and explanation. MEASUREMENT OF INNOVATION EFFICIENCY BASED ON INDICATOR METHODS

The main aim of this paper is to assess the efficiency of innovation activities undertaken by companies from the SME sector. To this end, first, the term “efficiency” and its application to the evaluation of innovation initiatives of companies and the entire economic sector must be defined. Second, adequate assessment methods must be presented, along with their limitations. The notion of performance efficiency is often used in relation to economic sciences where it adopts a specific meaning in the context of assessment and rationalization of activities. In academic literature, efficiency is usually defined as a result of activities undertaken, and described in terms of actual output relative to input, or results relative to resources used (Stoner & Wankel, 1986, pp.29-30). Efficiency as an economic category is supported by a range of complex theories. Among them, worth noting is M.J. Farrel’s pioneering work (presenting methods of efficiency measurement (Farrel, 1957, pp.253-281), T.C. Koopman’s (providing a formal definition of efficiency (Koopmans, 1951) and G. Debreu works (Debreu, 1951, pp.273-292). Initially, the efficiency evaluation methods proposed by researchers pertained to individual ventures or individual companies.

Another step in the development of efficiency evaluation methods was the introduction of stochastic frontier analysis (SFA) which allows capturing relations across entire economic sectors through comparison of inputs and outputs, with consideration given to two data components: random factor and inefficiency (Ruggiero, 1999). The works by L.R. Murillo-Zamorano and L. Hjalmarsson, S.C. Kumbhakar and A. Heshmati contain theoretical foundations of statistical methods for efficiency assessment used today: Data Envelopment Analysis (DEA) (Murillo-Zamorano, 2004, pp.33-77), Deterministic Frontier Approach (DFA) and Stochastic Frontier Approach (SFA) (Hjalmarsson et al., 1996, pp.303-327).

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Interest in these methods has grown enormously over recent years, and their scope of application has expanded and they can be used to assess various economic entities, entire sectors, and branches of economy. A clear, concise and precise overview of present-day comparative efficiency assessment methods can be found, among others, in the works by V. Sarafidis (Sarafidis, 2002).

Meanwhile though, upon a thorough literature review, the Author concluded that the issue of analysis and assessment of innovation efficiency is relatively rarely tackled (Chaney et al., 1991, pp.573-610; Geroski et al., 1993, pp.198-211; Rosebusch et al., 2010; Sawang et al., 2012, pp.110-125). Academics who explore the issue of innovation efficiency focus on formulating definitions of innovation efficiency (usually analogically to definitions of efficiency pertaining to other forms of company’s business activity) and apply standard efficiency measures, which usually capture measurable characteristics of innovation (West & Bogers 2014; Bijanska 2011). Such approach can yield certain results in the case of individual innovation ventures, however, it seems unsatisfactory when aiming at a comprehensive evaluation of innovation efficiency of a company, or entire economic sector(s).

As it transpires from existing subject literature (Foreman-Peck, 2013, pp.55-70; Brzezinsk, 2001, p.146), innovation activities are assessed with the use of the same methods which are used to assess investment projects (commonly used static and dynamic investment project evaluation methods such as Net Present Value (NPV), Internal Rate of Return (IRR), Modified Internal Rate of Return (MIRR) and Profitability Index (PI). And so, a wide range of innovation forms is narrowed down to a technology, product or process, that is forms that can be assessed with financial measures - whilst in the case of the effects of innovation implementation, many effects are not financial in nature, or else, are not measurable at all. The issue arises when, for example, one is supposed to assess value innovation or even organizational innovation when it is difficult to determine or measure expected rate of return or anticipated market success generated by the implementation of innovation due to the complexity and multidimensionality of its effects and costs. Therefore, it is widely suggested that evaluation of efficiency of standard capital investments should be different from evaluation of efficiency of innovative applications, since these undertakings differ in terms of objectives, implementation methods, effects, methodology of input/output analysis, conditions in which results are assessed and their impact on other performance indices (Karganov, 2008, pp.135-136). A similar distinction can also be found in the listing of types of company efficiency made by A. Jaki (Jaki, 2008, pp.3-7) who draws a clear line between investment efficiency and innovation efficiency. In the Author’s humble view, such approach is correct and


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justifies the need to find new methods for the measurement and evaluation of innovation processes. For the sake of clarity of the research subject, the Author adopts in this paper a definition of innovation efficiency (innovation activity efficiency) formulated by S. Sawang, K. Unsworth, and T. Sorbello: innovation efficiency is the overall result of benefits stemming from implementation of given innovation (Sawang et al., 2012). Synthetic and comprehensive review of theories of economic efficiency, including an evaluation of their applicability for the assessment of innovation efficiency, was presented by M. Kotsemir (Kotsemir, 2013). This work confirms the fact that most of the innovation efficiency evaluations systems – at the level of companies, sectors or national level – provide only a general picture and do not allow to draw specific, precise conclusions. Moreover, in principle, innovation efficiency evaluation based on available European statistics does not provide specific information on the activities of companies from the SME sector (Hollanders & Esser, 2007). The above observations, in particular in the context of low innovation level of the Polish economy, substantiate the urgent need to undertake thorough research on the essence of the efficiency of innovation processes and develop methods of measuring innovation efficiency which would capture the nature and complexity of innovation processes as accurately as possible. Upon analysis of reference literature and practical aspects of innovation efficiency evaluation, the following group of indicators appears to be a sound proposal: 1. innovation sale level, 2. success indicator related to the sale of innovation, 3. innovation level of the researched companies, 4. customers’ acceptance level of new products and services, 5. the efficiency of diffusion processes for new products and services, 6. return on innovation investment (ROI2). 7. % share of the profit from the sale of innovation in total company profit. The above indicators explicitly illustrate and, in consequence, evaluate the efficiency of innovation activities. The first five indicators listed above assess efficiency (and efficacy) of innovation diffusion process in terms of success of the innovation implemented by companies, market acceptance of innovative products and the impact of new product implementation on the efficacy of

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innovation diffusion – that is whether the launching of new products resulted in the company venturing into a new area, e.g. implementation of a new production line. The two remaining indicators allow to directly assess the innovation effects (profits) ratio to costs incurred. ROI2 (Return on Innovation Investment) is an indicator widely used in subject literature to evaluate the efficiency of innovation. It is calculated by comparing total profits of new product or service sales with total expenditure on investment over certain time. The idea to apply the ROI2 indicator to evaluate innovation efficiency and its application methodology were developed by, among others, A. Kandybina (Kandybin, 2014), P. Drake 2006 (Drake et al., 2006, pp.32-41); A. Kandybina and M. Kihn (Kandybin & Kihn, 2004). Return on innovation investment can be calculated in several ways. The most common and useful way is (Marr, 2012): ROI2= [(Net profit from new products and services)- (Innovation costs for these products and services)]/ (Innovation costs for these products and services) Although the ROI2 indicator is very useful in evaluating the efficiency of specific innovation projects, its application to entire economic sectors and branches of industry is debatable (precise identification of stream of revenues and outlays on innovation), and the evaluation and interpretation of results additionally requires the researcher to define reference values (or expected values). This stems from the fact that innovation efficiency correlates very strongly with company size, economic sector, type of business activity, and also the kind of given innovation initiative. For example, large production enterprises usually have a substantially higher ROI2 than small service providers. Analysis of existing subject literature allows determining reference values for ROI2 – depending on the size of the enterprise of the type of business activity. Such reference values for the ROI2 indicator, based on empirical studies of innovation efficiency in enterprises of diverse size and operating in various economic sectors are as follows: 18,4% for micro enterprises, 27,10 for small enterprises and 35,6%f for medium-sized enterprises [Thuriaux-Aleman et al., 2013]. RESEARCH METHOD The main objective of this paper is to answer the question: Does the allocation of EU funds affect the efficiency of innovation activities carried out by Polish


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SME companies? The low innovation of Polish economy on the one hand, and on the other, consumption of EU funds allocated to innovation, raise doubts as to the efficiency of using European aid measures to boost innovation. In an attempt to answer the puzzle, the Author has propounded the following hypothesis (H1): allocation of EU funds does not affect significantly the efficiency of innovation activities carried out by Polish SME companies. A comparative method was applied in the research – two groups of companies were extracted from the research sample: one composed of companies which used EU funds in their innovation initiatives, and one grouping companies which did not avail themselves of EU funds (grouping by feature selection). Innovation activity was defined as implementation (diffusion or absorption) of any innovation meeting the criteria of Oslo Manual (OECD 2005) by the company. The research sample consisted of 400 SME firms registered in Poland and operating for minimum 5 years. The companies were purposefully selected with regard to company size (according to the commonly applied classification by size of employment in the research year, i.e. micro, small and medium-sized companies), and primary business activity stipulated in PKD (Polish Classification of Activities, i.e. industrial/ production companies and service companies). This targeted selection was meant to ensure that research is conducted on a sample reflecting the statistical composition of Polish SME sector (in accordance with the sectoral data published by Polish Central Statistical Office). However, it must be underlined that the research sample is not representative. A detailed structure of the research sample is provided in table 1. Table 1. Research sample structure

Type of company

Number of companies

Number of companies due to the source of financing

innovation

The sum of innovations implemented in the

period

without EU funds

UE funds without EU

funds UE funds

Micro 303 179 124 398 265

Production 151 89 62 184 135

Service 152 90 62 214 130

Small 66 32 34 50 66

Production 33 14 19 24 34

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Service 33 18 15 26 32

Medium-Size 31 17 14 43 27

Production 14 7 7 18 15

Service 17 10 7 25 12

Total 400 228 172 491 358

Source: own elaboration based on research data

Empirical data were collected by way of an online questionnaire containing 34 questions. Respondents, that is entrepreneurs, provided basic company data and detailed data regarding innovation initiatives carried out in the surveyed period, i.e.: the number of implemented innovations, type of innovation, overall innovation expenditure, and innovation financing sources (using EU funds or not). Respondents provided additional information, including expected rate of return on innovation, and competence with regard to the evaluation of one’s own innovation efficiency. The questionnaire survey was conducted over the period 2014-2016. The questionnaire was designed (in terms of selection of attributes and data measures) so as to enable the use of OLAP (OnLine Analytical Processing) in subsequent data analysis, which allows for multidimensional data correlation. Based on the data gathered, the Author computed the ROI2 indicator for all companies surveyed – with the assumption that the accumulated profit/expense streams for each of the companies surveyed were attained (documented) for at least one year. The results were subjected to descriptive statistical analysis, the normality of distribution was checked, and non-parametric statistical tests were conducted (U-Mann-Whitney test and Kolmogorov-Smirnov test) to determine whether differences between datasets are significant (Hollander & Wolfe, 2014; Epstein & Yatchew 1985, pp.149-169; Varian 1982, pp.23-29). Microsoft Power BI v2.42 and Statistica v12 were used in data analysis. Following the principle of logical induction, the results were generalized and the hypothesis (H1) was verified. RESULTS AND DISCUSSION Firstly, the Author divided the research sample into two groups: 1. companies which used EU funds in their innovation initiatives – the group consisted of 172 firms that implemented the total of 358 innovations in the


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study period. The average share of the EU funding was 62% (micro 61%, small 65%, medium-sized companies 62%, respectively), 2. companies which did not use EU funds – the group consisted of 228 firms that implemented the total of 491 innovations in the study period. Next, the Author computed the ROI2 indicator for the study groups and compared the indicator with the quoted expected values. Due to the limited scope of this paper, the Author presents only the aggregated cross-section mean value of ROI2 for the following data measures: Company size/ Type of business activity, grouped by Innovation funding source. Averaged results are presented in table 2. Table 2. ROI2 indicator for the sample

Type of company

Average ROI2

Average expected

ROI2

Without EU funds UE funds

Average ROI2

Expected ROI2

Average ROI2

Expected ROI2

Micro 8,98% 16,19% 9,95% 15,04% 7,58% 17,85%

Production 8,54% 17,76% 9,82% 16,40% 6,69% 19,71%

Service 9,42% 14,63% 10,08% 13,69% 8,46% 16,00%

Small 9,50% 17,48% 9,22% 14,59% 9,76% 20,21%

Production 10,12% 16,88% 8,86% 13,93% 11,05% 19,05%

Service 8,88% 18,09% 9,50% 15,11% 8,13% 21,67%

Medium-Size 18,03% 16,23% 20,35% 15,00% 15,21% 17,71%

Production 17,14% 14,29% 20,00% 15,00% 14,29% 13,57%

Service 18,76% 17,82% 20,60% 15,00% 16,14% 21,86%

Average 9,77% 16,41% 10,62% 14,97% 8,63% 18,31%

Source: own elaboration based on research data

For companies which did not use EU funds to finance their innovation initiatives, ROI2 had the average value of 10,62%. The expected ROI2 value for this group was 14,97%. Average value of ROI2 of companies which benefited from EU funding was 7,87%, and the expected value was 18,31%. Considering the size of surveyed companies, it should be noted that better results and higher efficiency were shown by micro (9,95%) and medium-size (20,35%) companies not supported by the EU funds, as well as small (9,76%) companies using EU funds in their innovation ventures. The difference is particularly noticeable in the group of medium-sized companies (difference of 5,14%).

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Considering the type of business activity in the group of firms that did not use EU funds, average ROI2 for production companies was 10,35%, whereas for service providing companies it was 10,88%, thus they showed better innovation efficiency than the group of firms benefiting from EU funding (the difference was respectively: 2,11% for production companies and 1,84% for service companies). To recapitulate, the reported results allow concluding that companies whose innovation projects are co-funded by the EU yield a statistically lower average rate of return (lower innovation efficiency) – the difference was 1,99%, and thus the results tentatively confirm the hypothesis made. The hypothesis can be fully verified after answering the question: Is the difference obtained statistically significant? In order to answer this question and confirm the statistical significance of differences between results for the data sets, the Author performed the U-Mann-Whitney non-parametric test (selected after the normality of distribution of ROI2 was checked for the study groups). The results obtained indicate that the difference between mean ROI2 for both study groups is not statistically significant – with the p value of p= 0,114451 (higher than p=0,05 which denotes standard statistical significance in economic sciences). This result fully supports the hypothesis perpetrated. CONCLUSIONS The results confirm the hypothesis (H1) made by the Author: the consumption of EU funds does not affect significantly the efficiency of innovation activities carried out by Polish SME companies. What is more, it can be ascertained that the employment of EU funds to finance innovation activities exacerbates the effects of innovation initiatives (average result down by 1,99%). Such a situation gives rise to a question – Why companies that benefit from EU funds have achieved worse results in the study? An exhaustive answer to this question would require thorough research to correlate the results obtained with particular company’s attributes and determinants of innovation processes, such as e.g. innovation planning, R&D collaboration, innovation implementation or enterprise innovation culture. For example, interesting information is provided by correlation of the company’s length of existence with effects of its innovation activities (the Author, based


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on a preliminary analysis, assumes that companies with longer experience on the market achieve higher efficiency). Another, frequently evoked explanation for these findings is the thesis about the so-called „easy money” resulting from wide and relatively easy access to EU funds. Entrepreneurs use EU funds “as a by-product”, “by the way”, so to speak, which means that they carry out innovation projects in an unprofessional and unplanned manner. The lack of capability to evaluate the efficiency of one’s own innovation initiatives displayed by the entire study group confirms this hypothesis – only 23% of the study companies analyzed their efficiency, and as much as 56% admitted to having no competence whatsoever in this respect (this can be understood in case of micro firms, yet in case of small and medium-sized companies lack evaluation capacity is unacceptable). Such limitations result in an inability to effectively monitor innovation processes and, in consequence, inability to achieve expected benefits from implementation of innovation (in extreme cases, this can eventually lead to withdrawing from innovation projects). The method proposed in this paper, despite its limitations, can be a useful tool for evaluation of the efficiency of innovation projects – be it at the company level, or at the economic sector level. The results obtained in such a way can help formulate a development strategy for national innovation policy at the macroeconomic level. Moreover, the research findings provide reference values for innovation efficiency indicators for given groups of companies which can serve as the basis for the development of recommendations on the monitoring and evaluation of the efficiency of innovation initiatives (regardless of the source of finance). From the academic perspective, it would be most interesting to broaden the research scope and include other EU states – results of such an extended research may serve as a benchmark of the efficiency of innovation policy in individual EU member states. REFERENCES Audretsch, D. 2001. Research issues relating to structure, competition, and performance

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ON THE WAY TO MASS ENTREPRENEURSHIP IN RUSSIA

Sergey SMIRNOV1

Evgeniy CHEBERKO2 ABSTRACT Despite the long history of market reforms in the country, the quality of Russian entrepreneurship ecosystems has not reached the level of developed countries. In this paper, we propose our vision of the causes of such situation, provide the statistical data confirming our findings and suggest measures that might contribute to the development of Russian entrepreneurship. In the analytical part of the paper, we compare the available official statistics and the GEM survey data, provide with the available official statistics of Federal State Statistics Service (FSSS) compared to GEM survey data and offer our interpretation of the observed facts. Academic literature shows no consensus on the causes of low entrepreneurial capacity in the Russian economy. Undoubtedly, the «path dependence» effect is influenced along in the country. Some authors have highlighted that there could not exist any mass entrepreneurship in Russia because it has always had a predominantly directed economy. The final transition from the planned economy rejection did not lead to a flourishing entrepreneurship ecosystem. We support the idea that the main reason of low entrepreneurial performance in Russia is that government regulations in this sphere are contradictory and cumbersome. At the time of the government policy changes, experts will be obliged to offer a range of effective measures to unlock hidden entrepreneurial potential. As one of such measures, we propose the program of standard business models repository. This supportive program will not immediately remove the existing institutional problems but might promote mass entrepreneurship development in the country. KEYWORDS Entrepreneurial climate; mass entrepreneurship in Russia; statistics of entrepreneurship; standard business models.

INTRODUCTION Since the appearance of the first Soviet private enterprises in the form of cooperatives more than 30 years has passed. And at the present moment, we are forced to acknowledge state that over all these years the authentic

1 Saint-Petersburg State University, ul. Chaikovskogo st. 62, St-Petersburg 191123, Russia, [email protected]. 2 Saint-Petersburg State University, ul. Chaikovskogo st. 62, St-Petersburg 191123, Russia.

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entrepreneurial class in Russia has not emerged yet. Russian entrepreneurship has not reached the level of the developed countries neither by its quantitative nor by its qualitative characteristics. The official statistics and independent studies show that entrepreneurship in Russia hasn’t become mass but remains elitist and inaccessible to a wide cycle of the Russian population. This paper is an attempt to analyze the recent statistical data on Russian entrepreneurial dynamics and to investigate the causes of its unsatisfactory development. Also, the specific objective of this study is to offer recommendations for policymakers that can enhance the entrepreneurial environment and push forward mass entrepreneurship in Russia. Despite the existence of some extensive research on the development of entrepreneurship in Russia, we have not found enough recent studies where entrepreneurship is analyzed as itself with respect to its political-economic aspects. The research methods involve literature synthesis, statistical and comparative analysis. Among the most important factors that we have to take into account in our analyses is the high contribution of the state and commercial semi-state sector to the Russian economy. The official report of the Federal Antimonopoly Service (FAS, 2016) shows that this contribution rose from 35% in 2005 up to 70% in 2016. This means that the hidden nationalization that was continuously taking place in the Russian economy over the last 12 years implies shrinking market opportunities for independent entrepreneurs. At the same time, according to the statistics released by the FSSS (2016), the overall number of enterprises is slightly decreasing. For instance, the number of medium-size enterprises in Russia decreased nearly by 6% from 2008 to 2016. However, despite the unfavorable entrepreneurial climate, there are several global Russian companies (such as Yandex, Kaspersky, IBS, etc.) which are successful and formally state-independent. Besides this, some Russian companies are successfully expanding abroad through direct investments and M&A. Another important factor that we could not disregard is a high level of the shadow economy in Russia, which is estimated from 20% to 40% according to some experts (Schneider, 2005, p.610). A significant part of actually functioning enterprises exist in the shadow zone of the economy and remain virtually invisible to official statistics. Having analyzed all these factors together, we can infer that the current situation with entrepreneurship in Russia has a complex and sophisticated nature.


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CONCEPTUAL FRAMEWORK AND LITERATURE REVIEW A considerable part of Russian academic literature is devoted to problems with the development of entrepreneurship in this country. We have to note that these scientific papers in Russian are more comprehensive and wide-ranging than papers in English. This is due to the fact that the majority of local scientists are not published in international scientific journals. Most domestic researchers, like their foreign colleagues, have ascertained the stagnancy of entrepreneurial activity in the country (OPORA RSBI, 2016). The following are usually named among the main obstacles to starting up and operating businesses: - High costs of start-up financing and limited credit availability. - Severe regulatory obstacles and limited access to government procurement for independent entrepreneurs - High tax rates and non-tax payments (including corruption payments) - Unfair competition and a large share of the shadow economy - Negative societal attitudes towards entrepreneurs. The quarterly survey of the Russian Small Business Index (RSBI), which monitors the entrepreneurial activity of small and medium enterprises (SME’s) segment, deserves special attention. The index displays quarterly changes in the entrepreneurial climate for small and medium business. The index analyses lead to one of the remarkable facts ‒ micro-enterprises are the first to be affected by negative developments and to suffer from the business climate deterioration. There are relatively few studies focused on government attitude to entrepreneurship. Formally, government agencies make substantial efforts for entrepreneurship promotion and SME’s support. Simultaneously, the policy of re-etatization and de-liberalization which has been carried out since the mid-2000s does not present independent entrepreneurs as an influential social class. The results of surveys diverge considerably from what the official sources declare about SME's support. Motyshina and Gemazydinov (2013, p.101) report that nearly 70 % of entrepreneurs assessed the entrepreneurial climate as unfavorable and approximately 90 % of the respondents commented that Russian policy makers were not interested in strengthening the institute of entrepreneurship as itself. At present, being an entrepreneur in Russia involves the risk to personal freedom. According to the report of the Ombudsman for the protection of entrepreneurs’ rights, up to 130 thousand of criminal cases were initiated, 75 thousands of entrepreneurs were arrested and taken to the prison (Sergeev,

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2012). Some experts consider that the greater part of these cases is designer ones aimed at depriving owners of their property by threatening them with criminal prosecution. As their Russian colleagues, foreign authors also study the entrepreneurship development in Russia. In the study conducted by Aidis, Estrin and Mickiewicz (2008), the authors explored and summarized different opinions about entrepreneurial development in Russia. They emphasized the hostile nature of the business environment, low entrepreneurial activity and explain that it is largely due to the Soviet heritage, institutional weakness, and ineffectiveness of supporting government programs. Becker and Vasileva (2017) described the Russian political-economic system, using the following characteristics: statism, de-liberalization, and patrimonialism. The authors examined trends in the political–economic development in the country and stated that initial liberalization of the 90s was interrupted by the subsequent re-equalization and de-liberalization. They also observe the strengthening of the siloviki’s role (officials of law-enforcement agencies) who had received positions on corporate boards of state companies and were involved in the informal redistribution of productive assets by means of raider attacks. If all these characteristics of the political–economic system are taken together, there seem to exist severe obstacles to the development of entrepreneurship in the country. The notable study of Ojala and Isomäki (2011) consider 48 empirical articles on entrepreneurship and small businesses in Russia. Despite the substantial number of the examined works published between 1993 and 2009, the authors offer no clear explanation for the slow pace of entrepreneurship development. These studies, taken together, provide important insights into the entrepreneurial climate in the country. Over the past 5 years, the situation with oil prices and sanctions has sent the economy into recession and undoubtedly has affected the business climate and SMEs’ well-being. In this context, it is important to analyze recent statistical data and periodical surveys in order to form an understanding of the current situation and to suggest measures which could improve the situation and foster the development of entrepreneurship in Russia. The hostile business environment for entrepreneurs who are not associated with the state and local elites is a widely known fact about doing business in Russia. But the origins of this can be traced in Russian history and in the specific features of national mentality. Historically, the system of economy regulation by the state has always been rigid. So we believe that it is inappropriate to analyze statistics on entrepreneurship and government regulation, isolating them from the historical context. During the period of developing domestic industry, tsar Peter the First kept it under his rigorous control. At that time strict requirements of compliance with technological


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parameters were introduced and were practiced centrally defining assortment and pricing. Essentially nothing changed in the subsequent historical periods. Having based on their personal insight and feelings the rulers who followed to expand control and regimentation of entrepreneurial activity in the Russian Empire. In the 1830s, some enormously important for her economic development laws and decrees were adopted: the charter of the bankrupt, bill of exchange charter, the law on joint-stock companies and so on. Without them, it would have been impossible to conduct business effectively, but at the same time, these measures further entrenched regulatory requirements and severe control exercised by the central and local authorities. The chart below shows the major milestones of private business evolution in Russia. Table 1. The evolution of private business in Russia

1861- 1917 1917 -1921 1921-1929 Late 1930s - mid 1980s

1986 -1991 1992-till present

The formation of private business and its growing role in national economic development

Market economy destruction, economic collapse

New economic policy (NEP), private activity returns to the lower levels of the economy

Soviet period, private business is illegal, class of underground entrepreneurs (“tsehoviki”) emerges in 1970-1980s

The legal emergence of the new type of cooperatives, which were almost indistingui-shable from the private business

Formal free market economy, from 2004 progressive growth of state corporations

Despite the significant amount of literature on different aspects of entrepreneurship, there still exists uncertainty regarding the causes of its insufficient development in the case of Russia. Surprisingly, some of the reputable scientists tend to support the point of view that any mass entrepreneurship in Russia is impossible because it has always had a predominantly directed economy (Mau, 2015). Is this possible in today’s globalized and innovation-oriented world? In the world where engines of economic progress are maverick entrepreneurs like E. Musk or J. Ma and thousands of other high-tech entrepreneurs all over the world? We adhere to the position that weak entrepreneurial activity could not last for long. In the mid-term period, the country has to get over the entrepreneurial revolution which means, inter alia, a steady rise in a number of businesses that will conduct catching-up modernization of the national economy. These problems do not directly refer to the large businesses which emerged as a result of the rather unfair privatization process. For centuries property in Russia was not a

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reward for years of productive work but was mostly acquired by descent, stealing, fraud, etc. Unfair privatization process in the early 1990s simply replicated the traditional view of private property as a trophy. In consequence of this, widespread corruption emerged as a method of property redistribution (Cipko, 2008). “When a fuzzy set of people is convinced that the ownership of the fuzzy set of assets is dishonestly transferred to another fuzzy set of owners, a «vague» ownership illegitimacy appears as a result” (Kapeljushnikov, 2008). The vague character of illegitimacy implies that in society there is no definite demand for the substantial revision of property rights regulation. Currently, the local large business is inseparable from the state and obtains competitive advantages not by offering innovations but due to proximity to and close connections with policy makers and government officials. A combination of these factors plays a significant role in shaping the entrepreneurial ecosystem, defines the framework for its future development. On the following pages, we will examine the available entrepreneurial statistical data and will provide an interpretation of its current trends. ENTREPRENEURIAL DATA ANALYSES According to the data provided by FSSS for the last 10 years, the overall number of firms is likely to remain steady with a slight tendency to decrease. The most marked fall in the number of enterprises, according to FSSS, was during the second half of 2016. For details see the graph below-representing birth and death of enterprises in 2016.

Figure 1. Russia’s business demography indicators in 2016 (FSSS)


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The dynamic of enterprises number is especially obvious in the case of individual entrepreneurs, whose decreasing has been up to 300 thousand over the last 8 years. Another important fact is that more than 95 % of SME's belong to micro enterprises. And the overall number of micro enterprises with or without registration of legal entity is now 5,23 million (FSSS, 2016). Official statistic data points out that there are over 5 million enterprise owners in Russia, and this could be estimated as 7 percent of the economically active population. Actually, this is not the case in reality. To realize it, let us examine the data of the Global Entrepreneurship Index (GEM) based on the survey of economically active population in 65 world economies. Although the data on Russia has been available since 2002, GEM survey inferences have not been often cited in the local academic literature. In their recent paper, Motyshina and Gemazydinov (2013) offer their interpretation of the current trends in entrepreneurial activity indicators based on the GEM report (2012). The chart below contains Russia’s entrepreneurial activity indicators for the period 2002-2016.

Table 2. Entrepreneurial activity indicators

Source: GEM (2016)

Years

Entrepreneurial intentions

(percentage of 18-64 population who are

latent entrepreneurs and who intend to

start a business within three years)

%

Total early-stage Entrepreneurial

Activity (TEA) (percentage of 18-64 population who are

either a nascent entrepreneur or

owner-manager of a new business) %

Established Business

Ownership (percentage of 18-64 population who

are currently an owner-manager of

an established business) %

Female/Male rate TEA

(percentage of female 18-64, divided by the

equivalent percentage for

their male counterparts)

2002 2,51 2,47 1,11 0,42

2006 6,07 4,84 1,19 0,35

2007 3,46 2,67 1,68 0,43

2008 3,11 3,49 1,11 0,56

2009 2,39 3,88 2,28 0,71

2010 2,61 3,94 2,79 0,79

2011 3,61 4,57 2,84 0,79

2012 2,23 4,34 2,05 0,64

2013 2,6 5,75 3,41 0,86

2014 3,53 4,69 3,95 0,64

2016 2,12 6,27 5,3 0,82

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Although the GEM data shows some positive trends, the overall situation does not seem flourishing. On the one hand, during the observation period, there has been a notable increase in entrepreneurial activity indicators. One the other hand, the major indicator of entrepreneurial intentions remains on the abnormally low level. In terms of this indicator, Russia is rigidly at the end of the rating list and from time to time demonstrates the lowest entrepreneurial intentions level among the observed economies. The interpretation of this fact requires particular attention, since it may help to shed light on the reasons for inadequate entrepreneurship development in the country. Furthermore, Russia has also consistently occupied the last ten places for indicators of Total early-stage Entrepreneurial Activity (TEA) and Established Business Ownership. The only positive trend could be observed in the gender gap in terms of entrepreneurial activity inequality. Since the beginning of the survey the level of gender inequality has gradually decreased and now, according to this indicator, the country is already in the first half of the ranking. After summarizing the above information, the following conclusions can be drawn: 1. According to key indicators of GEM survey, Russia is at the very bottom of the list of observed countries. This exactly reflects the current state of entrepreneurial development in the country. 2. For the recent ten years, there have been two substantial economic crises in Russia (2008, 2014) which had a temporary effect but had not led to a real step-change in quantitative characteristics of Russia’s entrepreneurship. 3. The official entrepreneurial statistics of FSSS do not accurately reflect the quantitative data about a number of enterprises. A significant part of enterprises likes to be subsidiaries or affiliated entities of other larger companies. Large and middle businesses in Russia often establish a number of formal independent enterprises with an objective to reduce a risk of property loss, tax optimization or just to make it easier for control. However, another distorting factor is a large share of the shadow economy. Due to this factor a significant part of real functioning enterprises (especially in the agricultural industry), is not counted by the official statistical agency FSSS. Thus the information about the total number of enterprises, provided by FSSS, does not reflect a real quantity of autonomous companies.


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4. The dynamics of individual entrepreneurs, who usually are not affiliated with the large and medium business, is more representative. Official statistics indicates that there has been a slight decline in the number of individual entrepreneurs over the past years. And especially, in the second half of 2016, there has been a nearly three-fold growth in a number of liquidated enterprises. The more recent data is not available yet, so it is too early to draw any conclusions. 5. Entrepreneurial climate worsening is closely connected with the increase of the government's share in the economy. This thesis deserves a further analysis and needs empirical verification. Nevertheless, despite unfriendly environment and increased government's role in the economy, the number of legal entities and individual entrepreneurs has not yet significantly decreased. In the case of constraining factors dismantling, the potential of entrepreneurship could be realized and general entrepreneurial activity could demonstrate an impressive dynamic. DISCUSSION It is already impossible to imagine the contemporary market economy without any state involvement. The majority of developed countries have achieved impressive economic results due to their reasonable economic policy. But, at the same time, severe problems have occurred due to the state intervention in the economic process. Despite the declaratory encouraging entrepreneurial initiative and formal supporting programs, Russian ruling elite and «federal oligarchs» are not interested in a new powerful mass generation of entrepreneurs. Usually, entrepreneurs of new formation are not linked with existing elite and may exert a considerable influence on inefficient institutes. Almost 30 years after the private initiative legalization, the actual government policy is aimed at indirect deterrence of independent business. This policy is aligned with principles of statism and patrimonialism which became a fundamental part of Russia’s state ideology after 2012. This misguided policy cannot continue indefinitely and when it is changed the problem of adverse factors removal will be an item on the agenda. It can be noted that all negative factors of entrepreneurial development could be divided into two groups on the basis of possibility to change them in the short-term period. Negative factors with chronic nature include structural

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weaknesses of state institutions, contradictory and cumbersome government regulation, high level of overall economic risks, weak infrastructure etc. Another group of negative factors could be resolved fairly quickly if, there was a political will. Among these factors, we can list federal elite’s attitudes towards independent entrepreneurial activity, judicial reform, access to inexpensive funding sources. During recent five years ruling elites have gradually started to realize that the policy of de-liberalization and nationalization fails to produce the desired economic growth rates. Some experts believe that this policy will be changed in a mid-term period. This would be a moment of historic opportunity for rapid development of the national entrepreneurship ecosystem. A large number of new enterprises are expected to start as soon as the active part of the society finds out that entrepreneurial class is desired and encouraged by the state. In this probable situation, there should be special supporting measures for new generation of entrepreneurs who would just recognize their entrepreneurial intentions. As a key promotive measure, we offer the creation of business models repository. This idea stems from one of the main characteristics of Russian economy ‒ high level of regional economic and social inequality. Service and product unavailability often can be observed across many regions. There are many free niches in logistics, medicine, hotels, retail, etc., which cannot be filled be the reason of poor infrastructure and general entrepreneurial activity weakness. The standard business models for proposed repository should be designed for typical market patterns in manufacturing and services industries with respect to current regional specifics. These business models should be based on successful prototypes and should contain a package of necessary documents for opening business: general market recommendations, brief description of policies and procedures, starting financial model for the prospective enterprise. In other words, it is proposed to offer “franchise” packages free from necessary obligations. They would be available under the supporting program for new entrepreneurs. If we take into account, the total government expenses on all entrepreneurship supporting programs then the business model repository project would not be difficult to finance. Nationwide spreading of successful business models might foster mass entrepreneurship and ensure the reduction of inequality in country’s regions. Enterprises being launched under this supportive program should have a lower financial risk and consequently more accessible funding simultaneously. The program will not eliminate the problem of weak innovation capacity in local


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enterprises but will foster mass entrepreneurship in regions and create an environment for further development. CONCLUSION In this paper, we analyzed the most critical factors of the present state of Russian entrepreneurship development, provided our interpretation of key factors, and offered some measures for boosting mass entrepreneurship in the country. Literature review, public authorities’ actions analysis, and entrepreneurial statistics monitoring brought us to the conclusion that the key factor of weak entrepreneurial activity is its political-economic system. This system has been evolving over the past 15 years and has become more particularly prominent during the last 5 years. Increased level of statism and patrimonial system of governance that always were inherent to the Russian economy do not suspect a considerable number of entrepreneurs independent from the state. The actual policy of Russian government towards the independent entrepreneurial activity is ambiguous. On the one hand, the comprehensive support of new business creating is officially declared. Supporting programs for SME’s functioning on different levels of the government have substantial budgets. On the other hand, it could be traced an implicit policy of private business discrimination in the form of legislative and administrative restrictions. The statistical data analysis shows that space, where the private business operates, is diminishing and as a result, the overall quantity of enterprises is decreasing. Under these circumstances, a notable part of small and medium-sized enterprises makes their choice to go shadow. The authorities, in their turn, toughen tax administration and therefore create a vicious cycle. This worrying trend is worthy to be further investigated. We adhere to the position that weak entrepreneurial activity could not last for a long. The Russian economy faces prolonged stagnation. This forces the ruling elites to adjust their policy and as a result of the entrepreneurial constraining factors most likely will be weakened in mid-term period. When this happens experts and elites who are interested in country’s modernization must offer the effective programs for entrepreneurial development fostering. The programs should not be aligned to the Russian mentality and should be built on existing institutions with respect to regional specificities. We propose a supporting program for new entrepreneurs that will consist of standard business model repository and supplemental funding and

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consultancy programs. Business models should be based on successful prototypes and should contain a package of necessary documents for opening business. This approach might stimulate potential entrepreneurs to start their own business and therefore services and products availability will be improved across different regions of the country.

REFERENCES Aidis, R., Estrin, S., and Mickiewicz, T. 2008. Institutions and entrepreneurship

development in Russia: A comparative perspective. Journal of Business Venturing 23, 656–672

Becker, U., and Vasileva, A. 2017. Russia’s political economy re-conceptualized: A changing hybrid of liberalism, statism and patrimonialism. Journal of Eurasian Studies 8, 83–96

Cipko, A.S. 2008. Drama perestrojki: krizis nacional'nogo samosoznanija [Drama of perestroika: the crisis of national identity]. Jekonomika i obshhestvennaja sreda: neosoznannoe vzaimovlijanie. Nauchnye zapiski i ocherki. – M.: Institut jekonomicheskih strategij.

Federal Antimonopoly Service. (2016, March 15). The report about the state of Competition in the Russian Federation (FAS). Available online: http://minec.government-nnov.ru/?id=36271.

Federal State Statistics Service. (2016, March 15). Institutional transformations in the economy (FSSS). Available online: http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/ru/statistics/enterprise/reform/.

Global Entrepreneurship Monitor's (GEM) dataset (2002-2016). Available online: http://www.gemconsortium.org/data.

Index OPORA RSBI. (2016, March 15). Entrepreneurial climate in Russia: index OPORA. Available online: http://www.opora.ru/projects/indeks-opory-rsbi/?sphrase_id=2072.

Kapeljushnikov, R. 2008. Sobstvennost' bez legitimnosti? [Ownership without legitimacy]. Voprosy jekonomiki 3, 85-105.

Mau, V. 2015. U nas voobshhe, navernoe, ne budet massovogo malogo biznesa [We will not most probably see a mass entrepreneurship in Russia]. Vedomosti. Available online: http://www.vedomosti.ru/economics/characters/2015/03/26/u-nas-voobsche-navernoe-ne-budet-massovogo-malogo-biznesa.

Motyshina, M.S., and Gemazydinov, D.R. 2013. Problemy razvitija predprinimatel'stva v Rossii [Problems of entrepreneurship development in Russia]. Pravovoe pole sovremennoj jekonomiki 9, 99-103.

Ojala, A., and Isomäki, H. 2011. Entrepreneurship and small businesses in Russia: a review of empirical research. Journal of Small Business and Enterprise Development 18(1), 97-119.

Schneider, F. 2005. Shadow economies around the world: what do we really know? European Journal of Political Economy 21, 598-642.


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Sergeev, M. 2012. Biznesmeny v lagerjah okazalis' besprizornymi [Entrepreneurs in prisons]. Nezavisimaja gazeta. Available online: http://www.ng.ru/economics/2012-09-19/1_businessmen.html.

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MAJOR CHALLENGES SMALL AND MEDIUM-SIZED ENTERPRISES FACING WITHIN ASIA: SOLUTIONS FOR MITIGATING THEM Naoyuki YOSHINO1 Farhad TAGHIZADEH-HESARY2 ABSTRACT Small and Medium-sized enterprises are the backbone of the Asian economy. They make up more than 98% of all Asian businesses that provide two out of three private sector jobs in the continent. Therefore, it is vitally important for the Asian's economic success that has fully functioning support measures for SMEs. However, SMEs face challenges from limited access to finance, lack of a database to low R&D expenditures, undeveloped sales channels, and low level of financial inclusion are some of the reasons behind the slow growth of SMEs. This paper focuses on four major reasons that slowed the SME growth in Asia including (i) Lack of finance (ii) Lack of comprehensive database, (iii) Low level of R&D expenditures and (iv) Insufficient usage of Information technology and provides remedies for mitigating them. It is important for the Asian policymakers to implement these remedies in order to promote the production and employment in the SME sector which is the essential part of the Asian economies and is in the supply chain of large enterprises as well. KEYWORDS SMEs; Asian economies; credit risk database; credit rating; R&D expenditures.

INTRODUCTION Asia has been continuously growing, and this growth has alleviated poverty and increased the number of middle-income countries in the region. However, the recent regional and global economic slowdown requires a new growth model for Asia, with strengthened dynamics for small and medium-sized enterprises (SMEs) to boost national productivity. SMEs are the backbone of the economies of Asia, accounting for 98% of all enterprises and 66% of the national labor force on average during 2007–2012.

1 Asian Development Bank Institute (ADBI); Keio University, Kasumigaseki Building 8F, 3-2-5 Kasumigaseki Chiyoda-Ku, Tokyo, 100-6008, Japan, [email protected]. 2 Keio University, Asian Development Bank Institute (ADBI), 2-15-45 Mita, Minato-ku, Tokyo, 108-8345, Japan, [email protected] (corresponding author).


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SMEs contributed 38% of the gross domestic product or manufacturing value added in Asia on average in 2007–2012, suggesting their contribution to the region’s economies can be expanded further. SMEs influence trade. Thirty percent of total export value was brought by SMEs in Asia on average in 2007– 2012. In the People’s Republic of China (PRC), SMEs accounted for 41.5% of total export value in 2012, up 6.8% year-on-year, while in Thailand they made up 28.8% of total export value with 3.7% year-on-year growth. SMEs that are part of the global supply chain have the potential to promote international trade and mobilize domestic demand. (ADB, 2014) Definitions of SMEs is different country by country. In some countries the criteria for the categorization is capital and in some countries based on the number of employees, some countries use mix criteria like Japan, and it varies in each business. Table 1 shows the definitions of SMEs in Japan. Table 1. Definitions of SMEs in Japan

Source: METI White papers on SMEs (2014)

Limited access to finance, lack of a database, low R&D expenditures, undeveloped sales channels, low level of financial inclusion are some of the reasons behind the slow growth of SMEs. In this paper, we will focus on four major reasons that slowed the SME development in Asia including (i) Lack of finance, (ii) Lack of comprehensive database, (iii) Low level of R&D expenditures, (iv) Insufficient usage of Information technology in SMEs and consequently will provide remedies for mitigating them.

Definitions under the Small and Medium-sized Enterprise Basic Act

Definitions under the

Corporation Tax Act SMEs

Small enterprises

Business type Stated capital or number

of employees Number of employees

Stated capital

Manufacturing industry and others

300 million yen or less

300 or fewer

20 or fewer


Wholesale trade industry


100 or fewer

5 or fewer

Services industry 50 million yen

or less 100 or fewer

5 or fewer

Retail trade industry


50 or fewer

5 or fewer

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This paper is structured as following: The second section will explain the importance of SMEs in Asia, the third section is for the challenges SMEs faced with in Asia, the fourth section provides the solutions, and the fifth and last section is for the concluding remarks. THE IMPORTANCE OF SMES IN ASIA As for the importance of SMEs in Asia, according to a survey conducted by the Asian Development Bank (ADB) (ADB, 2014) on 14 countries from the five ADB regions: (a) Kazakhstan (Central Asia); (b) China and the Republic of Korea (East Asia); (c) Bangladesh, India, and Sri Lanka (South Asia); (d) Cambodia, Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam (South-East Asia); and (v) Papua New Guinea and Solomon Islands (Pacific), SMEs, together with micro-enterprises, account for more than 90 per cent of total enterprises in each country.

Figure 1. Small and medium-sized enterprises contribution to the gross domestic product (ADB, 2014; Asia SME Finance Monitor, 2013)

Note: Republic of Korea SME contribution to gross value added in manufacturing.

Kazakhstan

Republic of Korea

Indonesia

Malaysia

Thailand

0

10

20

30

40

50

60

70

2007 2008 2009 2010 2011 2012

( ) %


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SMEs, including micro-enterprises, contributed 59.1% of nominal gross domestic product (GDP) in Indonesia in 2012, a figure that is gradually increasing (figure 1). SMEs and micro-enterprises in Thailand contributed to 37.0% of nominal GDP in 2012, and in Malaysia, 32.7 per cent of real GDP in the same year. Thailand targeted an increase of SME contribution to GDP to 40% or more in its country strategy 2012. In Kazakhstan, the nominal GDP of SMEs tended to increase but their contribution to GDP decreased over the period 2010-2012 and was 17.4% in 2012.

Figure 2. Employment by small and medium-sized enterprises

(ADB, 2014; ADB Asia SME Finance Monitor, 2013)

The extent of employment by SMEs varies by country (Figure 2). The share of SME employees to total employment ranged between 28.0% (Kazakhstan) and 97.2% (Indonesia) in 2012.

CAM = Cambodia, CHI = China, INO = Indonesia, KAZ = Kazakhstan, R . KO = Republic of Korea, MAL = Malaysia, PHI = Philippines, THA = Thailand, VIE = Viet Nam. SME = small and medium-sized enterprise, Note: Data as of 2012 in China, Indonesia, Kazakhstan, Malaysia, Thailand and Vietnam Data as of 2011 in Cambodia, Republic of Korea, and the Philippines

KAZ

CHI

R. KO

CAM

INO

MAL PHI

THA

VIE

0

20

40

60

80

100

- 5 0 5 10 15 20 25

SM

E E

mp

loye

es to T

ota

l (%

)

SME Employees Growth (%)

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THE CHALLENGES SMES FACE WITH SMEs face challenges from increased competition, the ability to adapt to rapidly changing market demand, technological change, and capacity constraints relating to knowledge, innovation, and creativity. For many SMEs, however, their potential is often not fully realized due to a number of factors related to their small scale:

I. a lack of resources (finance, technology, skilled labor, market access, and market information);

II. a lack of economies of scale and scope; III. Higher transaction costs relative to large enterprises; IV. a lack of networks that can contribute to a lack of information, know-

how, and experience of domestic and international markets; V. increased market competition and concentration from large

multinational enterprises caused by globalization and economic integration;

VI. an inability to compete against larger firms in terms of research and development

VII. (R&D) expenditure and innovation (product, process, and organization);

VIII. being subject to considerable “churning” and instability; and IX. a lack of entrepreneurial zeal, capacity, and know-how.

In addition, many small businesses find that their geographical isolation puts them at a competitive disadvantage. Despite these substantial obstacles, many economies remain heavily dependent on SMEs, particularly for employment generation. Despite their perceived weaknesses, SMEs have not been swept away with the process of globalization and regional integration, but, rather, their role and contribution have changed and evolved which has enabled many to remain internationally competitive and collectively be an important source of employment generation (Harvie & Charoenrat, 2015). In this section, we will focus on explaining four major challenges that SMEs faced with, which are (i) difficulties in accessing to finance, (ii) Lack of information infrastructure for the SMEs, (iii) Low level of business R&D in SME business sector and (iv) Insufficient usage of Information technology.


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SMEs’ difficulties in accessing finance

CY = commercial year, DI = diffusion index.

Note: The diffusion index is a method of summarizing the common tendency of a group of statistical series.

Figure 3. Access to Finance - Small and Medium-Sized Enterprise and Large Firms in Japan

(Bank of Japan - BOJ, 2014)

Figure 3 shows the level of difficulty in raising money depending on firm size: the thick line shows the difficulties faced by SMEs, and the thin line shows the relative ease for large enterprises. Data points below zero indicate that companies are finding it difficult to raise money from either banks or the capital market. SMEs appear to face a more difficult situation in raising money when compared with large firms. Many banks prefer to allocate their resources to large enterprises rather than SMEs. The reason is that large enterprises have a lower risk of default and their financial statements are clear. However, SMEs are mainly riskier from the point of view of lenders and they do not have clear accounting information. Lack of information infrastructure for SMEs The financial industry deals with information intrinsically. However, there is an asymmetric information problem between suppliers and demanders of funds in

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general. Information infrastructures are necessary to remedy this problem. Many big enterprises list their shares on stock markets and issue securities in bond markets. Therefore, institutional information sharing schemes of capital markets can facilitate access to a wide range of information necessary to estimate the creditworthiness of big enterprises. However, most SMEs have no connection with capital markets. Financial institutions can closely and continuously observe borrowers, but it is costly to do so for borrowers of small loans. The lack of information infrastructure for SMEs exacerbates the information asymmetry problem. In the collateral based lending, the provision of collateral is the simplest way for SMEs and financial institutions to reduce the risk premium in loan formulations. However, by the introduction of Basel capital accord, many governments expanded policy-based finance for SMEs for mitigating the constraints on SME finance as an urgent countermeasure. Under such a situation, efficient and lower cost credit risk evaluation tools were necessary for SME financing, especially for transaction-based lending. To address the serious credit constraints on SMEs after to conform to Basel II requirements on risk management, a comprehensive information infrastructure is needed. This soft infrastructure will be explained in section 4 of this paper. Low level of business R&D in the SME sector Business enterprise expenditure on research and development (BERD) is an important driver of innovation and economic growth. During the last decade, BERD intensity rose significantly in many Asian courtiers like Korea, China, and India. However, in many other Asian countries, it slowed or did not increase significantly. A country’s R&D is generally concentrated in a limited number of large firms. In some countries, however, small and medium-sized firms (SMEs) account for a significant share of the total business R&D effort. This may be due to a relatively large body of SMEs or to SMEs that perform a large amount of R&D (such as specialized R&D units that are part of a larger group). The share of SMEs in total BERD in some Asian countries is very low, like Japan with only 5%, this is one of the important reasons behind the slowed economic growth in Japan. However, when we look at advanced economies in many non-Asian advanced economies this ratio is more than two-thirds like in Estonia and New Zealand (OECD, 2013).


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Foreign-controlled affiliates also play an important role in domestic R&D. However, when looking at Japanese data, in 2009-10 they accounted only for 6.3% in this country. In many other Asian countries, this ratio is small. But when we look at non-Asian advanced economies, this ratio is large for example 70% in Ireland (OECD, 2013). Insufficient usage of information technology in SMEs Information technology has developed very rapidly. Household ownership of mobile phone, smartphones, tablet computers have also spread very fast in the last few years. Accordingly, more and more consumers have come to prefer Internet sales to over-the-counter sales and the e-commerce market for individuals is expanding. However, SMEs have been unable to sufficiently utilize such opportunities. The majority of small enterprises do not have their own website. For instance, in Japan that the households’ mobile phone ownership reached beyond 90% and the interest users reach 90.58% of the population in 2014 (World Bank, 2016)1, those selling products and receiving orders via their own website account for only 10% of the total and less than 10% have their own shops or market their goods on Internet shopping sites. (METI, 2014) REMEDIES FOR TACKLING THE SME DEVELOPMENT CHALLENGES The previous section defined some major challenges that SMEs faced with. Here in this section we provide some efficient remedies for the development of SMEs in Asia, these solutions were workable in some Asian countries and it is necessary to expand it to the rest of Asia. Diversifying channels of financing In this section we provide three different methods for easing the SME financing, these three methods are developing credit guarantee schemes by the governments, private SME lenders and hometown investment trust funds for financing risky SMEs and start-up businesses.

1 Internet users as percentage of population, World development indicators, World bank (2016)

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Development of the credit guarantee schemes by governments Owing to the significance of SMEs to Asian national economies, it is important to find ways to provide them with stable finance. However, SMEs usually has severe difficulties with raising money. The under-supply of credit to SMEs is mainly because of the asymmetric information, high default risk and lack of collateral. SMEs have more difficulties for accessing to finance comparing to large enterprises. Lending institutions mainly prefer to increase the flow of fund to the latter sector, since the aforementioned reasons are lower in this group. In order to fulfill this problem, various government and donor initiatives have emerged in developed as well as developing and emerging economies and created a scheme which is so called Credit Guarantee Scheme (CGS). The public credit guarantee scheme is a tool to reduce the supply-demand gap in SME finance. Credit Guarantee Scheme (CGS) have been used over the decades in many countries and in various forms as a way to increase the flow of funds into targeted sectors and groups. The purpose for the creation of such scheme is to contribute to the flow of funds in the sectors that have difficulties to raise money, i.e. the small and medium-sized enterprises (SMEs) sector. CGS is making lending more attractive by absorbing or sharing the risks associated with lending to the targeted sector. This Scheme can also increase the number of loan funds available to an enterprise beyond its own collateral limits because the guarantee is a form of loan collateral. The guarantee manager can assume the additional role of loan assessor and monitor, which can improve the quality of the loans made (Zander, Miller & Mhlanga, 2013). However, guarantee funds have a cost, which is paid through the fees charged and/or subsidized by the government or by third party institutions. Many countries like Japan used to have full credit guarantee scheme which covered 100 percent of the default cost incurred by borrowers in Japan (Uesugi, Kasai & Yamashiro, 2006). Recently Japanese government revised the credit guarantee policy and implemented partial credit guarantee (PCG) as the full guarantee had moral hazard. If government covers 100 percent of the SMEs default costs and absorb the full risk, then lending institutions would not monitor and analyze the healthiness of the borrowers, because their risk is covered by the government. Thus it will raise the non-performing loans in the banking sector and will reduce the productivity of the public reserves. Hence, the partial credit guarantee scheme can be the optimal case. A Credit Guarantee Scheme (CGS) consists of at least the three parties a borrower, lender, and guarantor. The borrower is often an SME or a micro-


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enterprise, seeking debt capital. This borrower typically approaches private financial institutions (banks) for a business loan. For reasons of asymmetry of information, the loan request will frequently be turned down by the private lender. This is where the guarantor comes into the picture. The guarantor (Credit Guarantee Corporation), usually a government or trade association, seeks to facilitate access to debt capital by providing lenders with the comfort of a guarantee for a substantial portion of the debt (Riding & Haines 2001).

Figure 4. Credit Guarantee Scheme – Japan (Japan Federation of Credit Guarantee Corporations – JFG, 2014)

As it is clear in Figure 4 which is the Japanese example, CGCs money is coming from the National Government (from Ministry of Finance to Ministry of Economy, Trade, and Industry; METI) and also from the local governments. The National government is providing direct subsidies to CGCs, provides subsidies for compensation assets to Japan Federation of Credit Guarantee Corporation (JFG), and JFG provides it as a compensation for money in case of loss to CGCs. Also, the national government provides funds for credit insurance to Japan Finance Corporation (JFC) and JFC using this budget insure the contracts. On the other hand, local governments are also supporters of CGCs that provide contributions and loans to them. In Japan, in 2013 almost 3.8 million SMEs were operating, among which 37.9% means 1.46 million were guaranteed by

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the CGSs. There are 51 CGCs in Japan, one for each prefecture and one in each of the cities of Nagoya, Yokohama, Kawasaki, and Gifu. At the end of 2013, their total liabilities stood at approximately 30 trillion yen. Credit Guarantee Scheme, make banks’ lending to SMEs easy because, in the case of SME default, credit guarantee cooperation which is a governmental organization will cover a certain percent of the lenders’ losses. For example, if credit guarantee cooperation put 80^ as the guarantee ratio, it means when an SME goes into bankruptcy, banks can recover 80^ of their loans. If there was no credit guarantee system and if SME goes into bankruptcy, then banks lose everything. In Japan after the Tsunami and earthquake disaster of Fukushima in march 2011, the government decided to make credit guarantee ratio as 100^ (full guarantee), because of many SMEs, became much more difficult to borrow money from banks. However fully guarantee by credit guarantee cooperation creates the moral hazard problem toward banks. In the case of full guarantee if an SME going to bankruptcy, all the money will be recovered for banks, therefore banks do not carefully monitor the quality of business of the SMEs, whether SMEs are sound or non-sound, banks are willing to lend money. Before Japanese government decided to make full credit guarantee, this ratio was 80 percent which is called partial credit guarantee. More recently since the majority of the losses of SMEs after the Fukushima disaster recovered, the government reduced the credit guarantee ratio again. And now the question is that how many percents of credit guarantee ratio will be desired. In Asia, credit guarantee schemes have been relatively widely established. India launched the Credit Guarantee Fund Scheme for Micro and Small Enterprises in 2000 as a partial guarantee scheme; it covers 75% of the credit applied force (statistics and information in this paragraph from ADB, 2015). Indonesia started a public credit guarantee scheme for MSMEs - People’s Business Credit (KUR), in 2007; it guarantees 70%-80% of the credit applied. Kazakhstan has a partial credit guarantee scheme for SMEs (up to 70%) under the Damu Entrepreneurship Development Fund. The Republic of Korea provides credit guarantees for SMEs mainly through two credit guarantee institutions: the Korea Credit Guarantee Fund (KODIT) and the Korea Technology Finance Corporation (KOTEC). In Malaysia, the Credit Guarantee Corporation provides guarantees for SMEs. In Papua New Guinea, a regional bank (Bank of South Pacific) provides partial credit guarantees for SMEs (50% of the credit applied). The Philippines has two credit guarantee programs for MSMEs: the partial guarantee scheme provided by the Small Business Corporation (70% of the credit applied), and the Credit Surety Fund Program under the central bank. In Solomon Islands, the central bank provides a credit guarantee scheme for


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SMEs, called the Small Business Finance Scheme, covering 90% of the credit applied. The central bank in Sri Lanka also provides credit guarantee schemes for SMEs as well as several credit lines. Thailand developed the portfolio guarantee scheme for SMEs in 2009 as part of the Thai economic stimulus measures against the global financial crisis. Vietnam has two channels of credit guarantees, although they do not directly target SMEs: the credit guarantee fund operated by the Vietnam Development Bank (85% partial guarantees), and the local credit guarantee funds operated by provincial authorities under the supervision of the Ministry of Finance. Specialized private banks for SME financing In Japan, there is a good example of specialized private banks for SME financing, called Shinkin banks. Shinkin banks are deposit-taking cooperative banks that specialize in financing small- and medium-sized enterprises (SMEs) within a region. Just like city banks and regional banks, shrinkin banks are protected by deposit insurance and subject to the capital adequacy requirements and other banking regulations and supervisions. Unlike city banks or regional banks, however, shinkin banks make loans mainly to the member SMEs who capitalize the shinkin banks. They can make loans to non-member SMEs, but they have to restrict the share of the loans to non-member SMEs below 20%. On the other hand, they can accept deposits from anyone. Shinkin banks are regional financial institutions in the sense that they can make loans only to SMEs that operate within the same region as the shinkin banks. Shinkin banks are generally smaller than city banks and tier-1 and tier-2 regional banks and larger than credit cooperatives (shinyo kumiai). Shinkin Banks had a significant role in development SMEs in different regions and in achieving the comprehensive growth throughout the country of Japan (Hosono et al., 2006). Shinkin banks occupy 14.7% share of total loans to SMEs having a total of ¥128 trillion (equivalent to $1,244 billion) in funds (SCB, 2014). Development of hometown investment trust funds for risky SMEs Given that the financial systems in Asia are dominated by banks, the creation of regional funds (or hometown investment trust funds)1 to promote lending to start-up companies and riskier borrowers, such as SME,s would help to maintain the soundness of the banking sector, as banks would not be exposed to the risks that lending to such companies inevitably poses. Selling those regional trust funds through branch offices of regional banks, post offices,

1 Hometown investment trust funds were only recently established and now have been adopted as a national strategy in Japan. (Yoshino and Taghizadeh-Hesary, 2014)

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credit associations, and large banks would increase funding sources for regional companies. Such trust funds would not be guaranteed by a deposit insurance corporation and the associated risks would be borne by investors. The terms of a trust fund would have to be fully explained to investors, such as where their funds would be invested and what the risks associated with the investment would be, in order to strengthen potential investors’ confidence and help expand the trust fund market (Yoshino 2013). Examples of such funds in Japan include wind power generators and musicians’ funds. In the first example, to construct 20 wind power generators, private–public partnerships were launched and local residents invested $1,000-5,000 in a fund. They receive dividends every year through the sales of electricity by each wind power generator that they had invested in. Musicians’ funds gather many small investors buy units for $150-500. If the musicians become successful and their DVDs sell well, the sales will generate a high rate of return for the fund. Examples of both successful and failed funds can be cited. Project assessors play a key role in evaluating each project to limit the number of nonperforming investments and losses by investors. Some of the funds set up in Japan are regarded as charities, with some investors viewing them as a way to invest in their region to support new business ventures. Such new ventures pose a problem for banks, as although some will have high expected rates of return, the high risks involved make it difficult for banks to finance them. However, if the projects are financed by hometown investment trust funds rather than by deposits transformed into bank loans, they will not create nonperforming loans for banks. Banks can still benefit and compete with each other by selling the trust funds through their branch offices, although it has to be made clear that an investment in those funds is not guaranteed. If a bank sells successful hometown investment trust funds, it will be able to attract more investors while on the other hand, if it sells loss-making funds, it will lose investors in the future. The competition will improve the quality of projects and enhance the risk-adjusted returns for investors.


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Figure 5. Bank-based small and medium-sized enterprise financing and

hometown investment financing to riskier borrowers (Yoshino & Taghizadeh-Hesary, 2015a)

A hometown investment trust fund has three main advantages. First, it contributes to financial market stability by lowering information asymmetry. Individual households and firms have direct access to information about the borrowing firms, mainly SMEs that they lend to. Second, it is a stable source of risk capital. The fund is project driven. Firms and households decide to invest by getting to know the borrowers and their projects. In this way, the fund distributes risk, but not so that it renders risk intractable, which has been the problem with the “originate and distribute” model. Third, it contributes to economic recovery by connecting firms and households with SMEs that are worthy of their support. It also creates employment opportunities at the SMEs as well as for the pool of retirees from financial institutions who can help assess the projects. (Yoshino, 2013; Yoshino & Taghizadeh-Hesary, 2014). Development of SME database and credit risk analysis of SMEs Considering the importance of SMEs to many dimensions of Asian economic activity, further efforts need to be made to offer them access to finance. Their financial and nonfinancial accounts are often difficult to assess, but the Credit Risk Database (CRD) in Japan shows how SMEs can be rated based on financial and nonfinancial data. The CRD includes a huge amount of data that can be used to rate SMEs through statistical analysis. Database provided by the CRD association The CRD Association was established in 2001 as an initiative of the Japanese Ministry of Economy, Trade, and Industry and the Small and Medium Enterprise Agency. The initial membership was 52 credit guarantee corporations as well as financial and nonfinancial institutions. Its aim was to facilitate fundraising for SMEs and to improve their operational efficiency. The association’s membership increased from 73 institutions at the end of March 2002 to 179 by April 2015. (Kuwahara et al., 2015)

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The CRD covers SMEs exclusively (Figure 6). As of March 31, 2015, it included 2,210,000 incorporated SMEs and 1,099,000 sole-proprietor SMEs, and it is by far the largest SME database in Japan. The database for enterprises in default covered 500,000 incorporated and sole-proprietor SMEs (Yoshino & Taghizadeh-Hesary, 2015b). The CRD Association receives active support from both the private and public sectors, which has contributed to its success. For example, the Small and Medium Enterprise Agency nominates representatives of the CRD Association to government councils, which gives the association an opportunity to promote its activities and increase its membership. Credit guarantee corporations and private financial institutions use the CRD when they create a joint guarantee scheme.1 Before the CRD was formally established, the government invested ¥1.3 billion from the supplementary budgets for fiscal years 1999 and 2000 to finance the setting up of the CRD’s computer system and other operational costs. The association provides sample data and statistical information and scoring services.

Figure 6: Credit Risk Database of Small and Medium-Sized Enterprises CRD = Credit Risk Database; SME = small and medium-sized enterprise. Source: Authors and CRD website2

1 A credit guarantee system would make it easier for banks to lend money to SMEs. For example, in the case of an SME default, a percentage of the losses would be met by the credit guarantee corporation, which is a governmental organization. Assuming a credit guarantee corporation sets 80% as the guarantee ratio, if an SME went into bankruptcy, a bank could recover 80% of its loan. If there were no credit guarantee system in place and an SME went into bankruptcy, the bank would lose its entire loan. Research is needed into the optimal level of partial credit guarantees; that is, the percentage at which a credit guarantee corporation can encourage lending yet ensure that banks have an incentive to carefully assess the creditworthiness of borrowers. Arráiz, Meléndez and Stucchi (2014) have provided a framework for a partial credit guarantee system. 2 www.crd-office.net

SMEs 3.3 million

Financial Institutions

179

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Member, financial institutions use scoring models to evaluate creditworthiness, check the validity of internal rating systems, and align loan pricing with credit risk. In addition, the CRD Association provides consulting services to support the management of SMEs on the assumption that if SMEs are better managed, this will reduce the credit risk for member financial institutions and strengthen SME business operations. Consulting services have also been offered to member financial institutions to help them promote the implementation of Basel II. If such systems could be established in other parts of Asia to accumulate and analyze credit risk data, and to measure each SME’s credit risk accurately, SMEs would not only be able to raise funds from the banking sector, they could also gain access to the debt market by securitizing their claims. SME credit rating Credit ratings are opinions expressed in terms of ordinal measures, reflecting the current financial creditworthiness of issuers such as governments, firms, and financial institutions. These ratings are conferred by rating agencies—such as Fitch Ratings, Moody’s, and S&P—and may be regarded as a comprehensive evaluation of an issuer’s ability to meet their financial obligations in full and on time. Hence, they play a crucial role by providing participants in financial markets with useful information for financial planning. To conduct rating assessments of large corporates, agencies resort to a broad range of financial and nonfinancial pieces of information, including domain experts’ expectations. Rating agencies usually provide general guidelines on their rating decision-making process, but detailed descriptions of the rating criteria and the determinants of banks’ ratings are generally not provided (Orsenigo & Vercellis, 2013). In search of more objective assessments of the creditworthiness of large corporate and financial institutions, there has been a growing body of research into the development of reliable quantitative methods for automatic classification according to their financial strength. Extensive empirical research devoted to analyzing the stability and soundness of large corporates dates back to the 1960s. Ravi Kumar and Ravi (2007) provided a comprehensive survey of the application of statistical and intelligent techniques to predicting the likelihood of default among banks and firms. Despite its obvious relevance, however, the development of reliable quantitative methods for the prediction of large corporates’ credit ratings has only recently begun to attract strong interest. These studies are mainly conducted within two broad research strands focusing on statistical and machine learning techniques and may address both feature selection and classification. Poon, Firth, and Fung (1999) developed logistic regression models for predicting financial strength ratings assigned by Moody’s, using

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bank-specific accounting variables and financial data. Factor analysis was applied to reduce the number of independent variables and retain the most relevant explanatory factors. The authors showed that loan provision information and risk and profitability indicators added the greatest predictive value in explaining Moody’s ratings. Huang et al. (2004) compared support vector machines and back-propagation neural networks to forecast the rating of financial institutions operating in the United States and Taipei, China, respectively. In each case, five rating categories were considered based on information released by S&P and TRC, respectively. The analysis of variance was used to discard noninformative features. In this study, support vector machines and neural networks achieved comparable classification results. However, the authors found that the relative importance of the financial variables used as inputs to the optimal models was quite different between the two markets. As mentioned earlier, the main purpose of developing CRD is to create the infrastructure for the improved credit rating of SMEs. There are various methods for performing credit rating analysis using data on SMEs. A comprehensive credit rating method developed by Yoshino and Taghizadeh-Hesary (2014, 2015b) employed statistical analysis techniques on various financial variables of a group of SME customers of an Iranian bank. As Figure 7 shows, the analysis classified SMEs into several groups: financially healthy SMEs, medium-risk SMEs, and financially risky SMEs. The detailed analytical framework is explained in Yoshino and Taghizadeh-Hesary (2014, 2015b).

Figure 7. Classification of Small and Medium-sized Enterprises (Yoshino and Taghizadeh-Hesary, 2015b). Note: Group 1 = financially healthy SMEs; Group 2 = medium-risk SMEs;

Group 3 = financially risky SMEs.


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For SMEs in the financially healthy group, banks can lend them more money by charging low rates of interest with no required collateral. On the other hand, for SMEs in the high-risk group, banks can charge higher rates of interest with greater collateral requirements. If an SME’s performance improves and it moves into a lower risk group, banks can change their interest rates from high to low, accordingly. Similar SME data analysis is underway in Thailand. We hope for the data analysis explained in this paper to be expanded to many other Asian countries so that more reliable credit rating of SMEs will become possible. When data is not well established, banks lend money to SMEs based on their intuition rather than examining solid data. Establishment of SME databases will reduce information asymmetry between SMEs and lenders. R&D tax incentives In addition to providing grants, contracts, and loans, Asian governments should contribute to business R&D through tax incentives. This is the way which is going on in many Asian countries. For instance, among Asian countries, Korea government provided one of the most combined support for business R&D as a percentage of GDP. Effective tax subsidy rates should influence by business characteristics and should be vary based on the type of the businesses and maturity of the company. Among Asian economies, Japan and Korea give more generous treatment to SMEs relative to large firms. Some countries allow firms to benefit from tax incentives when they are not profitable enough to use them in the current period, but few do so to a significant extent. Or Australia provides a tax credit equal to 40% or 45% of eligible R&D expenditure, with any excess refundable SMEs (Deloitte, 2014). Refunds by authorities effectively allow SMEs to benefit from incentives as if they were profitable. Refunds and carry-forward provisions are sometimes used to promote R&D in firms that could not otherwise use their credits or allowances. Such provisions should be more generous for SMEs and younger firms. In this subsection, we provide an example of Japanese new R&D tax policies toward large enterprises and SMEs, which is applicable for the rest of Asia: Japanese R&D taxed incentives are volume-based credits for a) SMEs and b) Large enterprises.

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a) SMEs1: · A credit of 12% of total R&D expenditures. · The tax credit is limited to 20% of the company’s national corporate income tax liability before the credit is applied. The 20% limitation applies for fiscal periods beginning on or after 1 April 2012. Previously the limitation was 30% for the fiscal years beginning on or after April 1, 2009, up to March 31, 2012. b) Large companies: · A credit of 8% to 10% of total R&D expenditures. · The tax credit limitation is the same as for SMEs as outlined above. Additional incremental credits (for both SME & large companies): Either, Where the current period R&D expenditures exceed: (i) the annual average of the R&D expenditures for the 3 preceding fiscal years; and, (ii) the highest annual R&D expenditure for the previous 2 fiscal years, then the company may claim 5% of the incremental R&D expenditures (i.e., the current year expenditure less the amount in (i)); or where the current period R&D expenditure exceeds 10% of the average annual sales for the 4 most recent preceding fiscal years Japan offers separate credits for Small-and-Medium Enterprises and large companies, as well as an additional credit for entities of all sizes. (Including the current year), the company is eligible for a credit calculated using the following formula: (R&D expenditure less [Average Annual Sales x 10%]) multiplied by the R&D ratio (reduced by 10%), multiplied by 20%. The R&D Ratio is the amount of current year R&D expenses divided by average annual sales for the 4 most recent preceding fiscal years (including the current tax year). The tax credit is limited to 10% of the company’s national corporate income tax liability before the credit is applied. The additional tax credit is available for fiscal years commencing on or after 1 April 2008 through 31 March 2014. The R&D tax credit is available to blue tax return filers. Blue form tax return status is obtained by submitting an application form to the appropriate tax office. Furthermore, there is record keeping substantiation requirements applicable under the corporate tax law. Another R&D credit system is applicable for a company conducting R&D jointly with a qualified R&D institution (e.g., designated universities). Generally, unused R&D tax credits may be carried forward 1 year. The unused R&D tax credits for the fiscal years beginning on or after 1 April 2009 through 31 March 2010 may be carried forward up to 3 years. Research credits for fiscal years beginning on or after 1 April 2010 through 31 March 2011 may be carried forward 2 years.

1 SME in this policy are companies whose capital does not exceed JPY 100M, excluding a SME held by a large company/companies, whose capital exceeds JPY 100M.


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Collaboration on innovation Collaboration is a key vector of innovation-related knowledge flows both for firms that use R&D (either internally developed or externally acquired) and for those that are not R&D-active. In all countries for which data are available, R&D-active firms tend to collaborate more frequently on innovation than non-R&D-active firms, although in Korea (manufacturing only) and Australia, both types of firms have similar rates of collaboration. Patterns of collaboration differ in terms of partners’ characteristics. Collaboration with higher education or public research institutions is mainly an important source of knowledge transfer for large firms. In most countries, these firms are usually two to three times more likely than small and medium-sized enterprises (SMEs) to engage in this type of collaboration. More than half of all innovating large firms in Finland, Slovenia, Austria, and Hungary collaborate with these institutions but less than one in ten in Mexico and Australia do so. Collaboration is more frequent with other market actors, in particular suppliers and clients. Among large firms, suppliers play a key role as value chains become increasingly integrated, while in Finland, the United Kingdom, Korea, South Africa and Iceland, collaboration with clients is equally or more important, a potential indication of the growing importance of user-driven innovation. Utilizing information for SMEs In order to teach the new methods of sales using the Internet, it is possible that national governments through the municipalities which are nationwide, or through societies of commerce and industry and chambers of commerce and industry provide close mentoring style support to SMEs and small enterprises, in each region acting as “primary care doctors”. In Japan, Government planned that Small and Medium Enterprises Comprehensive Support Centers to be established in 47 prefectures nationwide from April 2013 onward with the aim of further strengthening the support system for SMEs and small enterprises. These centers have the following three function: (i) To provide comprehensive and advanced business advice that cannot be fully dealt with by existing support organizations, (ii) To offer support through organizing expert teams optimized for particular problems of respective enterprises, (iii) To introduce appropriate support organizations, etc. (one-stop services). Non-utilized IT usage, not only damaged the SME sales but made many SMEs unfamiliar with the ongoing supports. For example, in a survey done in Japan,

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approximately 50 to 60% of SMEs and small enterprises responded that they are not sure about where they can obtain information on SME support measures. Approximately 50% of them actually do not obtain any such information. Only 10% have utilized SME support measures but some 70% of those evaluate the measures positively (METI, 2014). They response of the SMEs in this questionnaire was the best help to shape the efficient way of the announcement: - A high percentage of enterprises hope to obtain information concerning the national government’s SME support measures from SME support organizations and municipalities. Therefore, the national government should actively hold face-to-face briefing sessions not only for prefectures but also for municipalities and SME support organizations at an early stage. -Approximately 50% responded that the amount of information concerning the national government’s SME support measures is somewhat inadequate. Those who responded that the timing of obtaining information is not timely accounted for approximately 50% and those who responded that information is hard to understand also accounted for approximately 50%. -In light of these questionnaire results, the national government of Japan decided to not only endeavor to improve the “Direct consulting briefing services” and the content of email publication, but also prepare a video in which officials in charge explain the content of each of the support measures, including their background and intended purposes, in an easy-to-understand manner and place it on the SME Agency’s portal site. CONCLUSIONS SMEs face challenges from increased competition, the ability to adapt to rapidly changing market demand, technological change, and capacity constraints relating to knowledge, innovation, and creativity. For many SMEs, however, their potential is often not fully realized due to a number of factors related to their small scale: a lack of resources (finance, technology, skilled labor, market access, and market, information); a lack of economies of scale and scope; Higher transaction costs relative to large enterprises; a lack of networks that can contribute to a lack of information, know-how, and experience of domestic and international markets; increased market competition and concentration from large multinational enterprises caused by globalization and economic integration; an inability to compete against larger firms in terms of research and development (R&D) expenditure and innovation


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(product, process, and organization); being subject to considerable “churning” and instability; and a lack of entrepreneurial zeal, capacity, and know-how. This paper provided solutions for mitigating four major challenges SMEs faced with. (i) For easing their access to finance three methods of developing credit guarantee schemes by the governments, private SME lenders and hometown investment trust funds for financing risky SMEs and start-up businesses defined. (ii) Second major challenges for the development of SMEs is a lack of SME database. Their financial and nonfinancial accounts are often difficult to assess, we provided an example in Japan as a solution for other Asian economies. Credit Risk Database (CRD) in Japan that shows how SMEs can be rated based on financial and nonfinancial data. The CRD includes a huge amount of data that can be used to rate SMEs through statistical analysis. (iii) The third major challenges in front of SME development which explained in this paper is a lack of R&D expenditures. For mitigating this problem, we provided a variety of solution: In addition to providing grants, contracts, and loans, Asian governments should contribute to business R&D through tax incentives. This is the way which is going on in many Asian countries. Collaboration is a key vector of innovation-related knowledge flows both for firms that use R&D (either internally developed or externally acquired) and for those that are not R&D-active. iv) the last major challenges defined in this paper for the SME development is the insufficient usage of Information Technology for the sales. It is possible that national governments through the municipalities which are nationwide, or through societies of commerce and industry and chambers of commerce and industry provide close mentoring style support to SMEs and small enterprises for teaching them how to utilize information technology in their business. REFERENCES

Arráiz, I., Meléndez, M., and Stucchi, R. 2014. Partial credit guarantees and firm

performance: evidence from Colombia, Small Business Economics 43(3), 711-724. Asian Development Bank (ADB). 2014. Asia SME Finance Monitor 2013. Manila. Asian Development Bank (ADB). 2015. Asia SME Finance Monitor 2014. Manila. Bank of Japan. 2014. Financial System Report October 2014. Tokyo. Deloitte. 2014. 2014 Global Survey of R&D Tax Incentives. Deloitte Touche Tohmatsu

Limited: London Harvie, C., and Charoenrat, T. 2015. SMEs and the rise of global value chains. In ADB

(ed.), Integrating SMEs into global value chains: Challenges and policy actions in Asia (pp. 1-26). Mandaluyong City: Asian Development Bank Institute

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Hosono, K., Sakai, K., and Tsuru, K. 2006. Consolidation of Cooperative Banks (Shinkin) in Japan: Motives and Consequences. RIETI Discussion Paper Series 06-E-034. Tokyo: The Research Institute of Economy, Trade and Industry.

Huang, Z., Chen, H., Hsu, C.J., Chen, W.H., and Wu,H. 2004. Credit Rating Analysis with Support Vector Machines and Neural Networks: A Market Comparative Study. Decision Support Systems 37(4), 543–58.

JFG. 2014. Credit Guarantee System in Japan. Tokyo: Japan Federation of Credit Guarantee Corporations.

Kuwahara, S., Yoshino, N., Sagara, M., and Taghizadeh-Hesary, F. 2015. Role of the Credit Risk Database in Developing SMEs in Japan: Lessons for the Rest of Asia. ADBI Working Paper 547. Tokyo: Asian Development Bank Institute.

Ministry of Economy, Trade and Industry. 2014. White Paper on Small and Medium Enterprises in Japan. Tokyo: METI.

OECD. 2013. OECD Science, Technology and Industry Scoreboard 2013, OECD Publishing: Paris.

Orsenigo, C., and Vercellis, C. 2013. Linear versus Nonlinear Dimensionality Reduction for Banks’ Credit Rating Prediction. Knowledge-Based Systems 47,14–22.

Poon, W.P.H., Firth, M., and Fung, H.G. 1999. A Multivariate Analysis of the Determinants of Moody’s Bank Financial Strength Ratings. Journal of International Financial Markets, Institutions and Money 9, 267–283.

Ravi Kumar, P., and Ravi, V. 2007. Bankruptcy Prediction in Banks and Firms via Statistical and Intelligent Techniques–A Review. European Journal of Operational Research 180(1), 1–28.

Riding, A.L., and Haines, G. Jr. 2001. Loan Guarantees: Costs of Default and Benefits to Small Firms, Journal of Business Venturing 16(6), 595-612.

SCB. 2015. Shinkin Central Bank Annual Report, 2014. Tokyo: Shinkin Central Bank. Uesugi, I., Sakai, K., and Yamashiro, G.M. 2006. Effectiveness of Credit Guarantees in the

Japanese Loan Market. RIETI Discussion paper series 06-E-004. Tokyo: The Research Institute of Economy, Trade and Industry.

World Bank. 2016. World development indicators 2016. Washington D.C. Yoshino, N. 2013. The background of hometown investment trust funds. In N. Yoshino

and S. Kaji (eds.), Hometown Investment Trust Funds: A Stable Way to Supply Risk Capital, Tokyo: Springer.

Yoshino, N., and Taghizadeh-Hesary, F. 2014. Analytical Framework on Credit Risks for Financing SMEs in Asia. Asia-Pacific Development Journal 21(2), 1-21

Yoshino, N., and Taghizadeh-Hesary, F. 2015a. An analysis of challenges faced by Japan’s economy and Abenomics. Japanese Political Economy Journal 40, 1-26.

Yoshino, N., and Taghizadeh-Hesary, F. 2015b. Analysis of Credit Ratings for Small and Medium-Sized Enterprises: Evidence from Asia. Asian Development Review 32(2), 18–37.

Zander, R., Miller, C., and Mhlanga, N. 2013. Credit Guarantee Systems for Agriculture and Rural Enterprise Development. Rome: Food and Agriculture Organization of the United Nations.


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DOES SIZE MATTER FOR RESPONSIBLE COMPANIES?

Alexandra ZBUCHEA1 ABSTRACT Increasingly more studies investigate the peculiarities of corporate social responsibility (CSR) initiatives in small- and medium-sized enterprises (SMEs). The present investigation highlights two main aspects, which would help companies understand what strategies to adopt to better perform both financially and socially. On one hand, it presents a brief literature review which highlights the relationship between CSR practices and financial performance of firms. On the other hand, it presents the way firms approach differently CSR starting from their size, as well as other inner and external factors. The paper shows, one more, the complexity of CSR and its impact on companies, as well as the necessity of multivariate investigation of this phenomenon. KEYWORDS Responsible companies; CSR; SMEs; financial performance.

INTRODUCTION CSR is an increasingly hot topic. Various literature review, both investigating the SME sector (Kechiche & Soparnot, 2012; Louche & Michotte, 2011) and the large corporations (Schmitz & Schrader, 2015), show an increase both in a number of studies and in the diversity of themes approached. The impact of CSR is studied by many studies, highlighting both financial outcomes, as well as other types of benefits. We stress that the benefits mentioned are very diverse, impacting both companies (Dodd & Supa, 2014; Sprinkle & Laines, 2010) and their stakeholders, such as customers, employees, partners and others (Devinney et al., 2006; Henriques & Richardson, 2004, p.38; Zbuchea, 2013). The present study investigates if significant differences exist between SMEs and large corporations in terms of the impact generated by their CSR strategies. This exploratory investigation is based on the review of the literature on the benefits associated to CSR identified by academic studies worldwide. The

1 Faculty of Management, National University of Political Studies and Public Administration, Faculty of Management, 30A Expozitiei Blvd, Sector 1, Bucharest, 012104, Romania, [email protected]

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financial impact, which is the main drive for profit-driven organizations, is separately analyzed. FINANCIAL IMPACT OF CSR – A BRIEF LITERATURE REVIEW Since CSR is, inevitably, part of the business strategy of a company, a large number of academic studies have investigated the impact that CSR would have on the financial performance (Aras, Aybars & Kutlu, 2010; Barnett & Salomon, 2006; Bauer, Gunster & Otten, 2004; Bohlin & Wiebe, 2016; Brammer & Millington, 2008; Brower & Mahajan, 2013; Callan, & Thomas, 2009; Chen & Wang, 2011; Choi, Kwak & Choe, 2010; Cochran & Wood, 1984; Dodd & Supa, 2011, 2014; Flammer, 2015; Gilley, Worell & EI-Jelly, 2000; Hansen, Ibarra & Peyer, 2013; Isaksson, Kiessling & Harvey, 2014; Johnson, 2003; Hellwig 2000; Kaufmann & Olaru, 2012; Lima Crisóstomo, de Souza Freire & Cortes de Vasconcellos, 2011; Lundgren, 2007; Mackey, Mackey & Barney, 2007; Mangolis, Elfenbein & Walsh, 2009; McGuire, Sundgren & Schneeweis, 1988; Nelling & Webb, 2009; Orlitzky, Schmidt & Rynes, 2003; Pava & Krausz, 1996; Peloza, 2006; Peters & Mullen, 2009; Rangan, Chase & Karim, 2012; Rhou, Singal & Koh, 2016; Saeidi et al., 2015; Scholtens, 2008; Soto-Acosta et al., 2016; Surroca, Tribó & Waddock, 2010; Tang, Hull & Rothenberg, 2012; Thornton, Kagan & Gunningham, 2003; Tirole, 2001; Torugsa, O’Donohue & Hecker, 2012; Tsoutsoura, 2004; van Beurden & Gössling, 2008; Wang, Dou & Jia, 2016). As easily observed, this issue is an old topic connected to CSR research. Most of the studies reflect a positive impact, highlighting a rather simple mechanism: CSR contributes to a smooth operation in line with various stakeholders’ expectations and requirements, therefore it generates reputation, attractiveness, increased appeal for partnerships, reduced costs and such. All these aspects are related to increased profits. Some studies argue that the actual financial performance related to CSR is tightly related with the consistency of CSR approaches, therefore it is conditioned by several factors it might not come automatically with CSR. For instance, intangible resources (Surroca, Tribó & Waddock, 2010), competitive advantage, reputation and customer satisfaction (Saeidi et al. 2015) are mediating this positive connection. Research shows that long-term and consistent CSR has a positive and deeper impact on the financial outcomes of a company (Peters & Mullen, 2009; Tang, Hull & Rothenberg, 2012). In addition, mediating factors related to the characteristics of the company could be considered – such as the inverse correlation between asset age and financial impact of CSR (Cochran & Wood,


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1984). Awareness of CSR activities or of irresponsible actions also influences financial performance by stimulated different reactions of the consumers (Rhou, Singal & Koh, 2016; Zbuchea, 2013). Nevertheless, some studies document a negative impact (Bauer, Gunster & Otten, 2004; Hellwig 2000; Tirole, 2001; Wagner et al., 2002). See also a discussion on older studies in Cochran & Wood, 1984, p.48). The research also shows that the impact could be either positive or negative, being influenced by the social approach considered (Barnett & Salomon, 2006). There is also a third list of studies, which document no relationship between CSR and financial performance (Aupperle, Carroll & Hatfield, 1985; Gilley, Worell & EI-Jelly, 2000; Thornton, Kagan & Gunningham, 2003; Ullman, 1985). ARE SMES RESPONSIBLE IN DIFFERENT WAYS COMPARED TO CORPORATIONS? Previous studies show that CSR activities are connected to the size of the firm (Jenkins, 2004, 2009; Pava & Krausz, 1996, pp.343-344). For instance, Udayasankar (2008) shows that large and small companies are equally driven to develop CSR campaigns, while medium-sized firms are not so motivated by the outcomes of such endeavors. A study of Perrini, Russo, and Tencati (2007) posit that large companies are much more involved in environmental activities compared to smaller firms. This might be related both to inner factors – such as available resources – and external ones – for instance, public pressure. Practices also depend on the size of the company and their resources (Jenkins 2004, 2009). The CSR involvement is, of course, a mixture of inner and outer factors. But these influence differently organizations of various dimensions. For instance, a study of Baumann-Pauly et al. (2013) shows that inner characteristics of SMEs facilitate the integration of CSR in business practices, while some characteristics of large corporations influence the communication and reporting of these activities. Nevertheless, size of the company in itself is not necessary a predictor of the CSR behavior, many other factors might be considered to better understand this phenomenon: corporate governance and owner structure; charismatic individuals or leaders; Delegation of (financial) decision-making; type of market offer/visibility; place in value chain, closeness to end-user; existence of industry practices and culture; financial resources; relative size of business/unit on location; social embeddedness of business unit (Blombäck & Wigren, 2009).

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Various studies, such as the overview of the CSR approached by French SMEs developed by Louche and Michotte (2011, pp.15-16), show that SMEs are aware of their social and environmental impact, but they do not monitor them closely. Some of them also not measure the outcomes (Camilleri, 2015). Therefore, they are also not very aware of the deeper impact of CSR. This might be related to the less formal approach to CSR in SMEs (Fassin, 2008; Louche & Michotte, 2011), compared to large companies, as well as with the personal impact the manager/owner of an SME has when CSR decisions are made (Jamali, Lund-Thomsen & Jeppesen, 2017; Russo & Tencati, 2009; Saulquin & Schier, 2007). In this framework, financial performance is not tightly related to SMEs’ CSR campaigns (Louche & Michotte, 2011) as it could be the case for many corporations. In addition, the inner structure and relationships of SMEs, such as the flat hierarchy, stimulate CSR involvement (Kechiche & Soparnot, 2012, p.99). One of the relevant factors in stimulating CSR is the network around an SME (Kechiche & Soparnot, 2012; Louche & Michotte, 2011; Worthington et al., 2008). Relationships with various communities, especially the local ones are critical in getting involved in social causes. A correlation that could be drawn between CSR and size of the company is related with the visibility of the company – including attracting the interest of more and diverse stakeholders (Peloza, 2006, p.64). Therefore, larger companies tend to be more attentive to CSR and to adopt CSR principles more often (Tsoutsoura, 2004, p.12). The size of the company could be related with the number of people that might be involved in CSR. Especially pro-active CSR involves more time and different types of resources to be consistent. The study of Torugsa, O’Donohue and Hecker (2012) shows a positive association between firm’s size, on one hand, and the adoption of pro-active CSR and financial performance, on the other hand. Involvement of people might be also different, in relation to the size of the company. Large companies have formal CSR structures, procedures, and task allocation. SMEs tend to be more flexible, could be informal and the CSR agenda is drawn with a strong input from the employees (Baumann-Pauly et al., 2013).


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More powerful and wealthy organizations, such is mostly the case of large corporations, also can afford to invest more in social fields. The study of Scholtens (2008, pp.50-51) shows that financial returns positively influence the social strengths, rather than the other way round. This is in line with the observation that if CSR is costless / financially effective, why do not all companies get involved – the explanation of Pava and Krausz (1996, p.331) being that not all companies afford the costs associated with proactive CSR. One of the benefits associated with CSR is competitive advantage. Nevertheless, for SMEs this outcome is still to be discussed, having in mind on one hand that SMEs are considered more open to proactive CSR especially because of less formal CSR and less available resources, and on the other hand that SMEs could be more flexible and have advantages large companies do not possess (Torugsa, O’Donohue & Hecker, 2012). An intriguing difference between SMEs and large corporations seems to be in the case of the CSR involvement in environmental protection. In the case of corporations, the environment – oriented CSR on a large scale leads to benefits, including financial ones related to reputation and increased confidence of consumers. In the case of SMEs, environment-related CSR does not correlate with better business performance (Soto-Acosta et al., 2016). The main argument for such situation could be that the impact of small organizations is not perceived as significant on the environment, neither when considering the negative impact of their operations or the positive one associated to CSR. Although some aspects of CSR depend on the size of the company, some others do not. For instance, commitment and awareness of CSR are similar in both types of firms, depending rather on industry and integration in business chains (Baumann-Pauly et al., 2013). CONCLUSIONS Many benefits could be associated to CSR practices, both for large corporations and SMEs. The financial performance is generally positively influenced, but actual outcomes could depend on industry and specific context of those firms. Studies investigating the correlation between CSR practices and financial performance of firms show concerns referring to the methodologies used in measuring it. This topic is very complex and difficulties are met both in defining

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UNIVERSITY - A KNOWLEDGE INCUBATOR FOR DEVELOPING ENTREPRENEURIAL SKILLS Ramona - Diana LEON1 ABSTRACT This research aims to determine how the economic and business administration faculties from the European Union member states are contributing to the development of their students’ entrepreneurial skills. Therefore, a case study strategy is employed which concentrates on the most important business schools from the European Union member states; thus, 267 syllabuses are identified and analyzed. The results prove that the European business schools manage to develop most of the required entrepreneurial skills. Their graduates are both task and people oriented. On the one hand, they value performance, are capable of solving problems and taking calculated risks. On the other hand, they know how to communicate and collaborate within a team. Besides, it may be stated that the analyzed educational programs are combining the “about entrepreneurship” approach with “for entrepreneurship” perspective; they focus on developing cognitive, functional, and behavioral competencies by combining lectures with active learning techniques. These findings have both theoretical and practical implications. On the theoretical level, they extend the literature regarding entrepreneurial skills by providing concrete information on the skills on which the academic curricula focus on. On the practical level, they provide valuable insights regarding the skills of the future entrepreneurs; their skills will influence their behavior on the business environment no matter if they will choose to be the owner of a business or an enterprising employee. KEYWORDS Entrepreneurship; risk-taking; communication; university; European Union.

INTRODUCTION Within the framework of a dynamic and unpredictable environment, entrepreneurship appears as a potential incentive for sustainable development. According to GEM (2014), this is a complex activity that fosters economic growth through innovation, job creation, and wealth. The entrepreneurs are the ones responsible for challenging the status-quo, discovering new profitable opportunities, and exploiting new ways of doing things. But how are the

1 National University of Political Studies and Public Administration, Faculty of Management, 30A Expoziției Blvd., Sector 1, 012104, Bucharest, Romania, [email protected].

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entrepreneurs developed? What skills do they have and where did they acquire them? Entrepreneurs are usually described as those who are capable of turning ideas into practice. According to Le Deist and Winterton (2005), their success depends on their cognitive competence (knowledge related to entrepreneurship), functional competence (skills and know-how), and behavioral competence (know how to behave). In other words, they have to know what to do in the business environment, to have what it takes to do it and to actually do it. In light of these, most of the entrepreneurship literature concentrates on emphasizing the entrepreneurial skills and how could these be developed. Among the entrepreneurial skills, the following are frequently mentioned: creativity, initiative, risk-taking, team spirit, self-confidence, autonomy, and leadership (Daniel et al., 2017; European Commission, 2008). Regarding entrepreneurs’ development, the entrepreneurship researchers and practitioners focus mainly on two approaches. Some researchers (Cope, 2003; Corbett, 2005; Deakings & Freel, 1998; Rae & Carswell, 2000) adopt an individual cognitive approach and claim that entrepreneurial skills are the result of various individual and cognitive processes that take place in entrepreneur’s head. Other scholars (Hamilton, 2011; Karatas-Ozkan, 2011; Seuneke et al., 2013) support the socially situated perspective and argue that entrepreneurial skills are the result of a situated phenomenon, embedded and influenced by the social dynamics of the environment. In line with this assumption, the European Commission (2012; 2013) states that it is absolutely necessary to embed entrepreneurial programs in all sectors of education. Starting from these, the current research aims to determine whether the European business schools focus on developing the entrepreneurial skills of their students or not. In other words, it concentrates on emphasizing whether the European higher education institutions are aligned to environment’s needs or not and whether their graduates are prepared to cope with uncertainty and to adopt an entrepreneurial behavior. The article is organized around four sections. In the following section, the results of a literature review are brought forward; the importance of higher education institutions in entrepreneurial education is emphasized and several entrepreneurial skills that a graduate should achieve during the educational programs are highlighted. Then, the research methodology is presented in detail. Further, the entrepreneurial skills developed among the European


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graduates are pointed out. The article closes by drawing several conclusions and indicating future research directions. ENTREPRENEURSHIP IN HIGHER EDUCATION INSTITUTIONS. A LITERATURE REVIEW The European Council (2006) labelled entrepreneurship as one of the eight key competences that all individuals should have in order to facilitate business creation and innovation (Landström et al., 2012) and to have a successful professional life (Daniel et al., 2017); the entrepreneur is seen not only as a person who is capable of assuming risks and starting a business but also as an individual who uses his/her skills and characteristics in order to create value in a company (Gundry, Ofstein & Kickul, 2014). Thus, the programs developed in higher education institutions start to focus on teaching and improving individual’s entrepreneurial skills (Daniel et al., 2017; Hannon, 2006; Katz, 2008; Schelfhout, Bruggeman & de Maeyer, 2016), and take into account the fact that their graduates may become self-employed or innovative employees. However, their task gets harder when it comes to defining which skills should they develop. As it can be noticed from Table 1, plenty of research has been made regarding entrepreneurial skills and various elements are included under this label. The diversification process occurs somehow natural if Chell’s (2013) approach to entrepreneurial skills is taken into account. According to this, the entrepreneurial skills are multi-dimensional and combine know-how, emotions, and behavior. In other words, they are a complex set of rational, emotional and spiritual knowledge. Any combination of this kind that fosters innovation and value creation can be labeled as “entrepreneurial skills”. On the other hand, Chell’s (2013) definition suits the mission of any higher education institution that aims to develop students’ knowledge and to teach them how to act and react under certain circumstances. Thus, the higher education institution acts as a knowledge incubator; it provides a controlled and safe environment in which students can discover and develop their characteristics, acquire new knowledge, feel the “taste” of a challenge/success/failure, understand themselves and others, and improve their creativity, autonomy, and responsibility. Each and every one of these characterizes an entrepreneur – the owner of a company or the person who displays enterprising behavior (Gibb, 2002).

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Although university’s mission is somehow linked to entrepreneurship, the academic programs have three different ways of approaching the issue, namely: “about”, “for” and “through” entrepreneurship (Gibb, 2002; Pittaway & Edwards, 2012). The first ones are more traditional and adopt a theoretical perspective; they focus on delivering knowledge about what entrepreneurship is and how an entrepreneur should behave (Pittaway & Edwards, 2012). Thus, they foster students’ cognitive competencies. The second ones are learner-centered and process-based, and try to combine theoretical and practical approaches; they concentrate on content and entrepreneurial skills and support the development of both cognitive and functional competencies. The last ones have a more pedagogical orientation and exploit the value of experiential learning; they aim to foster students’ non-cognitive entrepreneurial skills (Moberg, 2014). Table 1. Entrepreneurial skills, a theoretical perspective Entrepreneurial skills Author/-s (Year)

Performance orientation

Athayde (2009); Chiru, Tachiciu and Ciuchete (2012); Cunningham (1991); Draycott and Rae (2011); Gibb (2002); Lans, Verstegen and Mulder (2011); Mitchelmore and Rowley (2010); Moberg et al. (2014); Morris, Webb, Fu and Singhal (2013).

Creativity Athayde (2009); Chang and Rieple (2013); Cunningham (1991); Draycott and Rae (2011); Draycott, Rae and Vause (2011); Gibb (2002); Hodzic (2016); Lans et al. (2011); Mitchelmore and Rowley (2010); Moberg et al. (2014); Morris et al. (2013); Tiwari (2011).

Taking initiative Cui, Sun, Xiao and Zhao (2016); Draycott and Rae (2011); Gibb (2002); Hodzic (2016); Mitchelmore and Rowley (2010); Moberg et al. (2014); Morris et al. (2013).

Risk-taking Covin and Wales (2012); Cui et al. (2016); Cunningham (1991); Draycott et al. (2011); Gibb (2002); Moberg et al. (2014); Morris et al. (2013); Taatila and Down (2012).

Perseverance Gibb (2002); Hodzic (2016); Lans et al. (2011); Mitchelmore and Rowley (2010); Moberg et al. (2014).

Leadership Athayde (2009); Chang and Rieple (2013); Cunningham (1991); Draycott and Rae (2011); Draycott et al. (2011); Gibb (2002); Lans et al. (2011); Man (2012); Mitchelmore and Rowley (2010); Moberg et al. (2014); Morris et al. (2013); Schelfhout, Dochy and Janssens (2004).

Communication Chang and Rieple (2013); Draycott and Rae (2011); Gibb (2002); Hodzic (2016); Mitchelmore and Rowley (2010); Moberg et al. (2014); Morris et al. (2013); Schelfhout et al. (2004); Taatila and Down (2012).

Problem solving Chang and Rieple (2013); Chiru et al. (2012); Cunningham


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(1991); Draycott and Rae (2011); Gibb (2002); Hodzic (2016); Lans et al. (2011); Mitchelmore and Rowley (2010); Moberg et al. (2014); Morris et al. (2013); Schelfhout et al. (2004).

Collaboration / Teamwork

Chiru et al. (2012); Draycott and Rae (2011); Draycott et al. (2011); Hodzic (2016); Mitchelmore and Rowley (2010); Moberg et al. (2014); Morris et al. (2013); Schelfhout et al. (2004).

Learning Chang and Rieple (2013); Cunningham (1991); Draycott et al. (2011); Gibb (2002); Hodzic (2016); Lans et al. (2011); Man (2012); Mitchelmore and Rowley (2010); Moberg et al. (2014); Morris et al. (2013); Schelfhout et al. (2004).

Time management Chell (2008); Frese (2007); Schenkel et al. (2009); Zahra et al. (2006).

Nevertheless, Ahmad (2015) states that the current education programs are too mechanistic to encourage entrepreneurial behavior despite the fact that most researchers (Fayolle, 2013; Gibb, 2002) sustain that the last two perspectives from which the entrepreneurial education are approached are the most effective ones. The former takes mainly into account the educational programs “about entrepreneurship” while the latter focus on those programs which are based on active learning. According to Bonwell and Eison (1991), these involve using teaching methods such as teamwork, problem-solving, case studies, simulations, role playing, and field work. Against this backdrop, several gaps are identified in the entrepreneurship literature. Firstly, there is no general accepted framework on the entrepreneurial skills that a university should develop among its graduates. The studies written so far present an ideal image and avoid pointing out the concrete characteristics of a higher education graduate, from entrepreneurship perspective. Secondly, when it comes to teaching methods, an extensive list of techniques which support active learning is promoted. However, there is no prior research regarding their use in higher education institutions and their contribution to the development of students’ entrepreneurial skills. These gaps will be filled by the current research. METHODOLOGY This research aims to determine how the economic and business administration faculties from the European Union member states are contributing to the development of their students’ entrepreneurial skills. Therefore, the following research objectives are pursued: (i) to identify the

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most important business schools from the European Union member states; (ii) to analyze the syllabuses; (iii) to determine the entrepreneurial skills that the graduates are assumed to possess, according to the academic curricula; and (iv) to analyze the compatibility between the skills developed during the bachelor studies and the “classical” entrepreneurial skills. Further, a case study strategy is employed which concentrates on the most important business schools from the European Union member states. This domain is chosen due to the fact that their graduates are going to work in the most dynamic economic sectors, namely: banking, commerce, business administration, tourism etc. (Leon, 2016). Following the same methodology as Leon (2014), the best business school from each European Union member state is selected. The selection criteria are (i) presence in the QS Worlds University Rankings; (ii) number of students; (iii) research level; (iv) experience in the educational services market; (v) position occupied in national ranking; and (vi) access to information (Table 2). In the end, 21 business schools are selected and analyzed. Table 2. Selection criteria (Leon, 2014)

Criterion Reference level Units of analysis

Presence in the QS Worlds University Rankings

Present 293

Number of students > 12.000 students 226 Research level High 185 Experience in the educational services market

> 25 years 182

Position occupied in national ranking First 24 Access to information Syllabus in English 21

For each of the selected higher education institutions, the courses taught at the undergraduate level are identified. Then, 267 syllabuses are identified and analyzed. To each of them, a content analysis is applied; the units of analysis are represented by educational goals, practical assignments, and teaching methods (Leon, 2016).

RESULTS AND DISCUSSION As it can be noticed from Figure 1, most of the educational programs aim to develop students’ functional competencies by making sure that they acquire specialized knowledge. Although the analyzed business schools remain faithful to the traditional mission of a university – providing the necessary knowledge


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for individuals’ and society’s development –, they are also adapting to labor market’s demands and foster skills development. Therefore, they support the improvement of several entrepreneurial skills, namely: learning, problem-solving, risk-taking, time management, oral and written communication, and teamwork skills. These are supposed to facilitate the identification and exploitation of various opportunities. Thus, the graduates will be able to recognize various sources of opportunities, to solve complex problems, to expose themselves to an uncertain environment, to meet deadlines, to communicate and collaborate with others, and to learn from their experience and from others.

Figure 1. The skills on which the courses taught at the undergraduate level focus on

(Leon, 2016, p.348)

Nevertheless, the European business schools are also taking into account the challenges that occur in the business environment and the labor market. Therefore, almost 54.31% of the analyzed syllabuses shed light on the importance of knowing how to use ICT. On the one hand, this comes in line with company’s dependence on technology, and on the other hand, it exploits the Millennials predisposition of being connected through ICTs. If the elements presented in the previous section are taken into consideration, it can be argued that these skills were neglected by the entrepreneurial studies which have been developed so far; however, they were not neglected by the European educational programs. The development of these skills is ensured by combining passive and active learning (Figure 2). Although most courses (98.88%) are still having their roots in the traditional and theoretical perspective, several signs of progress have been made since more than 50% of the courses use active learning methods. Case studies, problem-solving activities and discussions are frequently used within the programs. This emphasizes a slow transition from the “about

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entrepreneurship” to a “for entrepreneurship” educational program. In other words, the European economic and business administration faculties have started the switch from a theoretical approach to a more complex one that combines theory with practice. As a consequence, they will continue to provide qualified human resources to the labor market. However, there is still a lot to do since they are far from using experiential learning and simulations.

Figure 2. The teaching methods that are frequently used in the European higher

education institutions (Leon, 2016, p.349)

According to data presented in Table 3, the European business schools manage to develop most of the required entrepreneurial skills. Their graduates are both task and people oriented. On the one hand, they value performance, are capable of solving problems and taking calculated risks. On the other hand, they know how to communicate and collaborate within a team. However, their developed entrepreneurial skills are more appropriate for an enterprising employee than for a business owner. In order to complete the demands for the second approach of an entrepreneur, the higher education programs should encourage their students to be creative, perseverant, and to take the initiative. In other words, they have to challenge their mental models and to teach them how to think out of the box and to stand up for what they believe it is right. Table 3. Comparative analysis between the required entrepreneurial skills and

those developed among the business schools’ graduates

Entrepreneurial skills Required Developed within the university framework

Performance orientation + + Creativity + - Taking initiative + - Risk-taking + + Perseverance + - Leadership + + Communication + + Problem solving + + Collaboration / Teamwork + +


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Learning + + Time management + +

As aforementioned, the European business schools use active learning for developing the entrepreneurial skills of their students. Within the bachelor programs, they focus on developing cognitive, functional, and behavioral competencies by combining lectures with active learning techniques (problem-solving, teamwork, discussions, and case studies). Nevertheless, it may be stated that their programs are combining the “about entrepreneurship” with “for entrepreneurship” perspective. Further attention should be offered to “through entrepreneurship” approach which will involve using experiential learning and simulations; so far, none of the analyzed educational programs takes these teaching methods into account. Therefore, their graduates lack creativity, initiative, and perseverance. CONCLUSIONS Synthesizing, the research objectives were achieved since (i) the most important business schools from the European Union member states were identified; (ii) their syllabuses were analyzed; (iii) the entrepreneurial skills that the graduates are assumed to possess, according to the academic curricula were brought forward; and (iv) the compatibility between the skills developed during the bachelor studies and the “classical” entrepreneurial skills was emphasized. These findings have both theoretical and practical implications. On the theoretical level, they extend the literature regarding entrepreneurial skills by providing concrete information on the skills on which the academic curricula focus on. On the practical level, they provide valuable insights regarding the skills of the future entrepreneurs; these will influence their behavior on the business environment no matter if they will choose to be self-employed or employees. Despite these valuable insights, this research is limited by the fact that it only considers a reduced number of higher education institutions and it is based on what is written in the syllabuses. In other words, it reflects what is happening in the best economic and business administration faculties and it neglects what is happening in other institutions. Besides, it uses the syllabuses as a reference point which means that it actually describes the goals of the academic curricula and not necessarily its results.

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DOES MĂGURELE SCIENCE PARK MEET THE CRITERIA OF THE SCIENCE PARK MANAGEMENT PARADIGM? Anda GHEORGHIU1 ABSTRACT Science parks are sources of entrepreneurship and economic competitiveness, crucial factors of the infrastructure supporting the knowledge economy. They encourage innovation, by providing a location in which public entities, research centers, universities and private companies cooperate, in order to attain scientific discoveries, transfer, and commercialization of technology. The paper investigates the components and practices of science parks as technological entrepreneurship entities. Literature review reveals that Regis Cabral, a historian of science and technology and a physicist, came up in the 90’s with the idea of Science Park Management Paradigm (Cabral-Dahab Paradigm). He has been influential in the management of science parks worldwide and lays down 10 criteria for a property development to be considered a science park. The Cabral-Dahab Paradigm was validated for cases in many countries. The aim of this paper is to examine if “Măgurele Science Park” meets the 10 criteria of the Science Park Management Paradigm, as it was stated by Regis Cabral. The science park of Măgurele, a city located in Romania, will be a top research location for high power lasers and nuclear physics in the next decades. Another purpose of this study is to investigate what are the strengths and weaknesses of the project and offer possible solutions for the management of the future science park. The conclusion of the study is that the project meets for the time being 50% of the criteria of the Science Park Management Paradigm. KEYWORDS Science park; ELI-NLP; Măgurele; Cabral-Dahab paradigm.

INTRODUCTION

A Science Park is an area intended to support innovation, through university-industry and government collaboration. Science parks are supported by universities and local governments aiming at complex developing the

1 National School of Political Sciences and Public Administration, Faculty of Management, 30A Expoziției Blvd, Sector 1, Bucharest, 012104, Romania, [email protected].


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community. Science technology parks are instruments used by regional and national authorities for regional development. Creating and sustaining cutting-edge technologies and their commercialization is beneficial and desirable for universities, research institutes, and industries. Nevertheless, it is not easy to set up, budget, and staff a technology commercialization/transfer office, with a good return on investment for commercialization, protect the intellectual rights, negotiate joint ventures and find potential customers, strategic partners, joint venture partners, and investors. Science parks usually finance themselves from fees from the rental of space (land, infrastructure, building) and grants, investments, or payments by big companies for R&D contracts with universities and/or research institutes (famous Science parks are at Stanford, Oxford, Cambridge, etc.). No wonder that not long after Stanford University started a research park in the early 1950s (the oldest in the world), Silicon Valley community boomed. It was followed by Sophia Antipolis (France) in Europe in the 1960s and Tsukuba Science City (Japan) in Asia in the early 1970s. Nowadays, there are over 400 science parks worldwide. According to UNESCO, the number of Science Parks in Europe is 230.

Table 1. Science parks in Europe Western Europe Eastern Europe

Belgium 6 Austria 1 Denmark 5 Czech Republic 2 Finland 24 Estonia 1 France 60 Latvia 1 Germany 13 Poland 4 Greece 4 Russia 3 Ireland 2 Italy 6 Luxembourg 1 Norway 2 Portugal 1 Spain 5 Sweden 12 Switzerland 7 The Netherlands 6 Turkey 1 United Kingdom 63 Total Western Europe 218 Total Eastern Europe 12

Source: own calculations after the data provided by UNESCO in the “Science Policy and Capacity-Building” Report

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One can easily notice the imbalance in the number of science parks in Western Europe in comparison to those located in Eastern Europe. This situation can be explained by the historical gap in terms of advancement in the management of the science parks, between Western and Eastern Europe, due to the communist approach of science research in the years following World War II. For more than 4 decades (1945-1989), Eastern European states entered under the influence of the Soviet Union, and have applied a hyper-centralized research system, organized by the state. There were no private scientific parks; virtually all research facilities were public. After 1990, research centers in Eastern Europe have adopted the occidental management approach. Besides, the globalization phenomenon put pressure on research centers to be now more connected with other scientifically advanced and financially strong research centers, companies, and laboratories in the region. Romania, as a member of the European Union, can benefit from structural funds, in order to boost its research facilities, especially for the so-called “Laser Valley”, the extended area around Măgurele city, where Extreme Light Infrastructure - Nuclear Physics Project (ELI-NP) has not only a fantastic potential for science, but also can be a great business attractor for Ilfov county, for Bucharest, and for Danube/Black Sea region. The success of this great project can encourage other research centers located in Romania and in other countries of Eastern Europe to “duplicate” the model provided by “Măgurele Science Park”. LITERATURE REVIEW There are facts that underline the industrial sector’s dependence on public science everywhere in the world, not only in eastern Europe, that is why the university is at the core of intersectoral research production (Godin & Gingras, 2000), having as outcome the growth of the number of products developed and commercialized by companies (Zucker, Darby & Armstrong, 2002) in research-intensive industries. Regis Cabral, a historian of science and technology and a physicist, came up in the 90’s with the idea of Science Park Management Paradigm, the so-called “Cabral-Dahab Paradigm” (Cabral, 1998). He has been influential in the management of science parks worldwide and lays down the criteria for a property development to be considered a science park.


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According to the management paradigm, a science park must fulfill 10 requirements:

1. Have access to research competencies and personnel in the areas of knowledge in which the park has its distinctiveness. 2. Be able to market its products and services. 3. Have the capacity to offer marketing and managerial skill to private companies, mainly Small and Medium-sized Enterprises. 4. Ability to protect intellectual rights, via patents, security or any other means. 5. Be able to choose or decline which firms enter the park, according to the science park identity. 6. Have an unambiguous identity-name, logo or the management discourse. 7. Have a management with expertise in financial matters, and which has presented long-term economic development plans. 8. Have the backing of powerful and stable economic actors, such as a funding agency, political institution or local university. 9. Include in its management an active person of vision, with the power of decision and with the high and visible profile, who is perceived in society as personifying the interface between academia and industry. 10. Include a prominent percentage of consultancy firms, as well as technical service firms, including laboratories and quality control firms.

METHODOLOGY The aim of this paper is to examine if Măgurele Science Park meets the criteria of the Science Park Management Paradigm, as it was stated by Regis Cabral. The methodology used is data collection, by examining the existing data in the form of databases, reports, newsletters, press releases, etc. regarding the science park of Măgurele, a city located South of Bucharest, capital of Romania, where a top research center for high power lasers and nuclear physics is under construction. The purpose of this study is to investigate what are the strengths and weaknesses of the project and offer possible solutions for the management of the future science park. FINDINGS ELI-NP project The Infrastructure of Extreme Light - Nuclear Physics (ELI-NP) is the official name of the research center for high power lasers and nuclear physics at

https://en.wikipedia.org/wiki/Management_consulting

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Măgurele. It is a project intended to be the most advanced research infrastructure in the world, focusing on the study of photonuclear physics and its applications, consisting of a very intense laser, comprising a very high-intensity laser of two 10PW ultra-short pulse lasers and the most brilliant tunable gamma-ray. beam. ELI-NP will focus on a broad spectrum of research topics in the fields of fundamental physics, nuclear physics and astrophysics as well as materials science, nuclear material management and life sciences. (ELI-NP Project Măgurele) ELI-NP was selected by the most important scientific committee in Europe - Nuclear Physics Long Range Plan in Europe (NuPECC) - in the Long Term Plan of Nuclear Physics in Europe as a major infrastructure. In the first phase of implementation (2013-2015), the tasked already fulfilled are: recruitment of the specialized personnel, the components of the first 10PW laser in the world and the civil constructions. Being located in Măgurele, a city situated just 12 kilometers away from the center of Bucharest, ELI-NP infrastructure users will benefit from all the infrastructures and services provided in the metropolitan area. Concentrating eight research infrastructures of national interest, Măgurele has the highest scientific visibility in Romania, with five national institutes (Nuclear Physics, Physics for Lasers, Plasma and Spatial Sciences, Physics of Materials, Optoelectronics, Seismology), the Physics Faculty and two engineering companies (optoelectronics and design of nuclear infrastructures). At the completion of Măgurele Science Park, Romania will host one of the most advanced research infrastructures in the world. A total direct impact of ELI-NP on GDP between 2012-2030 is estimated at 3,451 billion LEI. 'Măgurele Science Park' On February 26, 2015, 'Măgurele Science Park' (MSP) was launched as a socio-economic platform that primarily aims to provide entrepreneurship opportunities in the rural and urban areas of Ilfov County. The initiators of this project, supported by the Ministry of Education and Research and the Ministry of Energy, Small and Medium Enterprises and the Business Environment, are: the Ilfov County Council, Măgurele Local Council, Horia Hulubei National Research and Development Institute for Physics and Nuclear Engineering (IFIN-HH), The High Tech Cluster Magistrate (MHTC) and the Bucharest-Ilfov Inter-Community Development Association - ADIBI (Agerpres, 2015).


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The MSP will be built on a terrain near the ELI-NP research center of about 40 hectares donated by the Ilfov County Council and Măgurele Town Hall, and the investment in this project will be about € 1 billion investments, covered by European funds, with a budget contribution of 20% of the total investment. The MSP project is designed to build a cluster around Bucharest, whereby the entire high technology industry will be concentrated on the research institutes of Măgurele. This initiative intends to support the entrepreneurial environment in the urban and rural areas of Ilfov County as an effective framework for development in this area, with the aim of providing logistical support, local facilities and tax incentives especial for innovative SMEs. It will lead to the transition from a purely scientific project to a sustainable urban intelligent development project. The city of Măgurele will benefit from various transport options, such as biogas / electric buses, car-sharing, trains, trams, dedicated bicycle tracks, for increased access to recreation areas (rivers, forests, delta, lake) and from only 30-minutes access to the airport, downtown Bucharest, Danube. It will also benefit from foreseeable economic growth, materialized in over 12,000 new jobs, EUR 1,26 billion annual turnovers, EUR 500 million-taxes, collected annually at the State Budget. Măgurele High Tech Cluster Măgurele High Tech Cluster Project is a prerequisite for opportunities created by the ELI project, for successfully positioning cluster entities components, product/service innovations generated in the international markets. The 65 entities that form the cluster decided to focus on capitalizing the scientific research outcome conducted at Măgurele Physics Platform and, in particular, all research results of the project Extreme Light Infrastructure - Nuclear Physics. This will allow innovative SMEs members of the association to be able to find a niche in the domestic, European and international market. This will lead to the following synergistic results at local and European level: - the creation of sustainable alliances between SMEs and R&D entities in Physics from Măgurele platform and associated universities; - the establishment of a cluster of clusters with two other entities that develop ELI project, in the Czech Republic and Hungary; - the collaboration with CERN – Geneva which operates the largest particle accelerator in the world; CERN has expressed interest in direct cooperation

with Măgurele High Tech Cluster. (Măgurele High Tech Cluster)

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The status of MHTC stipulates that the purpose of the Association is to provide the management of a cluster associative structure on 22.07.2013 of a partnership agreement by 27 founding members, pursuing predominantly to implement the association development strategy. Some of the specific objectives of the Association are to: -Ensure the cooperation between research, development and innovation institutions and the business environment through joint projects; -Use the opportunities related to the existing research and development potential, including applied research, as well as the one generated by the realization of the ELI-NP project; -Attract European, international, national and local funds to supplement the personal contribution of the Association members to common interest projects; -Develop the activity of the Association by creating a science, industry and technology park in Măgurele town. The initial assets of the Association amount to 35,000 RON, set up with a cash contribution of 1,000 RON from each associate. They consist of its own property and resources, necessary to cover organizational and operating expenses and to carry out its activities. The Academician Nicolae Zamfir, director of ELI-NP, has declared that: “There is a tremendous interest in obtaining atomic particles and sub-particles not by using magnets, as at CERN, but by using the laser and the enormous energy generated by it. But the interest goes far beyond the scientific one because the practical applications of the high power laser are very important. Here we can talk about true innovation. Highly innovative products are those that bring a lot of added value and, as a consequence, generate significant revenue to continue working. The Laser at Măgurele gives everyone a great chance in this regard. We can continue to import products and technologies from countries like the United States or South Korea by consuming financial resources for it, or we can become ourselves exporters of products and technologies that embody a high degree of innovation in them. [...]. That is why it is extremely important for Romania to quickly develop an intelligent urban and business infrastructure around the actual laser. " (Source: Marketwatch) In the following part of the paper, one will examine if Măgurele Science Park meets the 10 criteria of the Science Park Management Paradigm, as it was stated by Regis Cabral.


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1. Have access to research competencies and personnel in the areas of knowledge in which the park has its distinctiveness. Fulfilled criteria. MSP has access to tremendous research competencies and personnel in Nuclear Physics, Physics for Lasers, Plasma and Spatial Sciences, Physics of Materials, Optoelectronics, Seismology, and others. The competencies and personnel are especially in the domains in which the park has its distinctiveness (lasers and nuclear physics). The most prestigious members of the cluster are: -National Institute of Physics and Nuclear Engineering -„Horia Hulubei” (IFIN-HH) -The Nuclear Apparatus Factory (FAN) -The National Institute for Research and Development for Microtechnology (IMT Bucharest) -The National Research and Development Institute for Nonferrous and Rare Metals (IMNR) -The National Institute of Research and Development for Optoelectronics (INOE 2000) -The National R&D Institute for Electrical Engineering (ICPE-CA Bucharest) -The National Institute of Materials Physics (NIMP Bucharest) -The National Institute for Earth Physics -The Institute of Atomic Physics (IFA) -The National Institute of Research and Development for Cryogenic and Isotopic Technologies ICSI Rm. Valcea -The Geological Institute of Romania (IGR) -The Astronomical Institute of the Romanian Academy. 2. Be able to market its products and services. Partially fulfilled criteria. For the time being, the project has just started and there are no proves that MSP is able to promote its products and services. ELI-NP Innovative Cluster as the Management Entity of the MHTC will offer, according to its status, marketing activities. 3. Have the capacity to offer marketing and managerial skill to private companies, mainly Small and Medium-sized Enterprises. Partially fulfilled criteria. Same comment as for criteria no. 2. The outlook is positive since the 65 members of the cluster have a good background, most entities proved to be successful in terms of managerial skills.

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4. Ability to protect intellectual rights, via patents, security or any other means. Fulfilled criteria. ELI-NP Innovative Cluster as the Management Entity of the MHTC will offer skills development in the transfer of knowledge and technology. All research institutes have experience in applying the procedures at European level for intellectual property protection. 5. Be able to choose or decline which firms enter the park, according to the science park identity. Fulfilled criteria. This feature has a certain degree of risk since the number of entities forming the cluster is very big and it is not easy to manage decisions under these circumstances. However, there are good prerequisites in decision making, since article 26. of the status stipulates that the Executive Committee is the governing body of the Association and consists of 7 persons out of which a Chair, a Vice-Chair, and 5 members, elected by open voting in the General Assembly, for a period of 3 years. The composition of the Executive Board shall ensure the best representation within this body of all members of the Association. 6. Have an unambiguous identity-name, logo or the management discourse. Partially fulfilled criteria. MSP has a name, but not yet a logo. Both name and logo have to be registered to the State Office for Inventions and Trademarks of Romania. 7. Have a management with expertise in financial matters, and which has presented long-term economic development plans. Fulfilled criteria. According to article 31 of the status, ELI-NP Innovative Cluster as the Management Entity of the MHTC will have a censor elected by the General Assembly for a period of 3 (three) years, extendable who must be an accounting expert, under the conditions of the law. The censor verifies the way the Association assets are administrated, writes reports and presents them before the General Assembly, may participate in the meetings of the of the Executive Committee, without voting right. In addition, so far, ELI-NP has collaborated with PricewaterhouseCoopers, the most prestigious financial and audit consulting worldwide. In 2016, they prepared an Impact Study for the Laser Valley - Land of Lights project. 8. Have the backing of powerful and stable economic actors, such as a funding agency, political institution or local university. Fulfilled criteria. Indeed, the project is backed of powerful and stable economic actors- the Ilfov County Council, Măgurele Local Council, Horia Hulubei National Research and


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Development Institute for Physics and Nuclear Engineering (IFIN-HH), The High Tech Cluster Magistrate (MHTC) and the Bucharest-Ilfov Inter-Community Development Association – ADRBI. 9. Include in its management an active person of vision, with the power of decision and with the high and visible profile, who is perceived in society as personifying the interface between academia and industry. Partially fulfilled criteria. For the time being, the President of the cluster has not been appointed, but since the members are institutes and companies with highly-skilled personnel, members of the academia, physicists, engineers The Academician Nicolae Zamfir has played so far the role of key figure of the project, especially because he has very frequently appeared in the media and thanks to his membership of the Romanian Academy, the highest academic establishment in the country. Nicolae Zamfir, an esteemed physicist, has published over 160 articles in ISI-rated journals, articles in the periodicals of the Romanian Academy, monographs, participated in more than 120 Physics Conferences in Germany, the USA, and other international conferences. 10. Include a prominent percentage of consultancy firms, as well as technical service firms, including laboratories and quality control firms. Partially fulfilled criteria. Among the 65 members of the clusters, one can find many entities that have their own laboratories, but one cannot find a firm specialized in quality control firms. However, many of the members have certified their technologies according to ISO family of standards. For instance, General Conf Grup is certified ISO 9001/2008 and ISO 14001/2004 and OHSAS 18001/2008 certification body by AEROQ.

CONCLUSIONS Măgurele Science Park meets 50% of the criteria of the Science Park Management Paradigm, as it was stated by Regis Cabral. The rest of 50% is only partially fulfilled; therefore, actions should be taken to overcome some weaknesses of the project. To summarize, the strengths of Măgurele Science Park are the following: it has access to research competencies and personnel, ability to protect patents, has been cooperating with consulting firms with expertise in financial matters, has long-term economic development plans, and has been sustained by important

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and established economic actors, such as a funding agency (ADRBI), political institution (Ilfov County Council, Măgurele Local Council) and top R&D institutes of the local university. The weaknesses of Măgurele Science Park are the following: it has no credentials yet for the ability to market its products and services, or to manage such a complex project, does not have a logo yet and has not officially assigned a president of high visibility and top management skills.

The proposals for this project to attain maximum capacity and become indeed a viable science park, are the following: a. Attracting top experts able to manage the science park, including in the domain of marketing its products and services; b. Initiating knowledge exchange with specialists from other science parks in Europe or other continents could also be beneficial, for sharing learning, ideas, and experiences. This can be made through thematic workshops, as well as study visits in important research centers (such as “Route des Lasers” in Bordeaux); c. Setting up a specialized entity able to offer consulting services in the field of marketing and management to private companies, mainly small and medium-sized enterprises that will activate in the future years in the science park premises; d. Registering the name and logo to the State Office for Inventions and Trademarks of Romania; this can provide credibility and uniqueness to the science park; e. Electing a high-profile personality as a President of the cluster; f. Attracting at least a quality control company as a member of the cluster.

REFERENCES Agerpres. 2015. Măgurele Science Park - un nou pas pentru dezvoltarea orașului

Măgurele, 2015, Feb.27. Available online: https://www.agerpres.ro/comunicate/2015/02/27/comunicat-de-presa-magurele-science-park--14-29-27.

Cabral, R. 1998. Refining the Cabral-Dahab Science Park Management Paradigm. International Journal of Technology Management 16, 813–818.

ELI-NP Project Măgurele - Extreme Light Infrastructure - Nuclear Physics. Available online: http://www.eli-np.ro.

Godin, B., and Gingras, Y. 2000. The Place of Universities in the System of Knowledge Production. Research Policy 29(2), 273-278.


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Marchidanu, B.2017. Cafeneaua de inovare rafinează ideile de dezvoltare inteligentă în jurul proiectelor ELI-NP și Laser Valley. MarketWatch, April 27, 2017. Available online: http://www.marketwatch.ro/articol/15604/Cafeneaua_de_inovare_rafineaza_ideile_de_dezvoltare_inteligenta_in_jurul_proiectelor_ELI-NP_si_Laser_Valley.

Măgurele High Tech Cluster. Available online: http://www.mhtc.ro/proiectu-mhtc/. UNESCO. Science Policy and Capacity-Building Report. Available online:

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NEW TECHNOLOGIES AND ENTREPRENEURIAL CHALLENGES FOR REINVENTING PUBLIC ORGANIZATIONS Mauro ROMANELLI1 ABSTRACT New technologies help to sustain an open government and offer entrepreneurial challenges for reinventing government and leading public organizations to rediscover principles and ideas on which democratic governments should be based. Building digital government permits to transform government as institution encouraging participation and involvement of citizens in the work of government. The aim of this study is to explain how new technologies offer an entrepreneurial challenge for reinventing and building an open and digital government. New technologies in government permit to democratize public life and improve the quality of public service delivery and strengthen the quality of life for citizens. Driving change in public sector relies on sustaining the need of entrepreneurship technology-driven by rethinking public organizations as technology-enabled platforms and public institutions engendering public and social value co-creation and sustaining co-production for rediscovering the active role of citizens in the work of government. KEYWORDS Digital government; public entrepreneurship; e-government; digital ecosystem.

INTRODUCTION Public institutions have to serve the public interest as result of dialogue and shared leadership as responsive organizations searching for an effective collaboration with citizens as partners in the work of government to improve the quality of public services (Vigoda, 2002). Creating public value relies on sharing responsibility and interaction between public management and citizens (Moore, 1995). Introducing and implementing new technologies in the work of government should also help public institutions to gain legitimacy and maintain the organizational reputation as a set of beliefs about capacities, intentions, and missions (Krause & Carpenter, 2012, p.26).

1 University of Naples Parthenope, Department of Business and Economics, 13 Via G. Parisi, Naples, 80132, Italy, [email protected].


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The aim of this study is to explain how new technologies offer an entrepreneurial challenge for reinventing government proceeding by building an open and digital government. The entrepreneurship in the public sector can be considered as a means to exploit and discover opportunities for creating, maintaining and increasing public value and better serving the public interest, satisfying the needs of people as to ensure a coherence with democratic values and principles of governance (Shane & Venkataraman, 2000; Bernier & Hafsi, 2007; Bellone & Goerl, 1992). Governments and public institutions are embracing and introducing information and communication technologies (ICTs) searching for modernizing public and democratic life, enhancing the quality of life for citizens, improving the quality of government operations and public service delivery. The study relies on archival data drawn from the analysis and review of the literature concerning the meaning of public entrepreneurship in government and the role of new technologies to support the government efforts in the attempt to build an open government encouraging citizens to be involved and to participate in the work of government. The advent of new technologies and e-government initiatives emerge as a new way for reforming public sector and offer the promise of delivering high-quality services, providing efficiency, reshaping governance by enhancing transparency, accountability, and participation (Torres, Pina & Royo, 2005). Reinventing public organizations as entrepreneurial challenge relies on introducing new technologies in government leading to a new season of public sector reform as an opportunity for rebuilding new governance mechanisms based on collaboration, involvement, and engagement of citizens in order to co-produce public services and cooperate for ensuring a better quality of public services. ICTs help to rethink public entrepreneurship for reinventing government and designing public organizations opening up to democracy, searching for participation and collaboration engendering a proactive role of citizens in government. UNDERSTANDING THE MEANING OF ENTREPRENEURSHIP WITHIN PUBLIC ORGANIZATIONS Conceptualizing the entrepreneurship in terms of discovering and exploiting profitable opportunities (Shane & Venkataraman, 2000, p.218) helps to identify the entrepreneurship in the public sector as a means to exploit and discover opportunities for creating, maintaining and increasing public value. Public institutions have to plan and design an entrepreneurial action for better serving the public interest and satisfying the needs of people. The objective and

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meaning of public sector entrepreneurship are to create value for citizens, combining public/private resources for exploiting social opportunities for change and to fulfill the public interest (Bernier & Hafsi, 2007). According to Morris and Jones (1999), the entrepreneurship in the public sector implies that governments have to play an innovative and proactive role in steering society in order to improve the quality of life by restructuring internal processes and developing new solutions adequate to encounter the needs and demands of citizens. Kearney, Hisrich, and Roche (2008) refer to the entrepreneurship for producing superior organizational performance and pay attention to corporate entrepreneurship in terms of the process based on innovative activities for developing new and existing services, new technologies, administrative techniques and strategies by identifying the entrepreneurial process leading to produce better results for the organization. Perlmutter and Cnaan (1995) point out how public entrepreneurship relies on a proactive leadership for developing a profitable public-private partnership by promoting a direct involvement of the city, of the local residents and businesses in the community. Zerbinati and Souitaris (2005) have identified different five typologies of public entrepreneurs (professional politician, spin-off creator, business entrepreneur in politics, career-driven public officer, politically ambitious public officer) having different goals with regard to achieving some rewards, following a précised time-horizon and exit strategy in terms of re-election at higher level, job opportunity, prestige and responsibility in other organizations or internal promotion as election for a political post. THE ENTREPRENEURIAL CHALLENGE OF REINVENTING AND BUILDING DEMOCRATIC GOVERNMENTS Sustaining entrepreneurship in public sector organizations helps to improve government performance and build an effective and efficient organization. Public entrepreneurship requires both a strategic view for helping organizations to change by performing activities and developing practices for ensuring a better quality of services for citizens (Zampetakis & Moustakis, 2007). The government should be transformed and reinvented. Osborne and Gaebler (1992) state that reinventing government is a necessary action to have a better government for enhancing and sustaining a better governance as the act of solving collectively the problems. Osborne and Gaebler (1992) use the locution ‘entrepreneurial government’ in order to identify how Reagan’s government changed in the early 1980s in the United States and how the public sector modified the way to operate. An


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‘entrepreneurial government’ should have the following characteristics: catalytic in terms of steering than rowing; community-owned by empowering communities to face and solve problems being more proactive and creative than bureaucracies; competitive government by cutting costs and inefficiency; mission-driven by creating small and entrepreneurial organizations pursuing effectively the goal by their employees; results-oriented by paying attention to measuring outcomes and rewarding success; customer-driven, by giving resources directly to the customers; decentralized and market-driven. Reinventing government implies to rediscover an entrepreneurial government as efficient and effective institution responsive to customers empowering clients and citizens (Goodsel, 1993). Three different dimensions of managerial entrepreneurship are identified: product-based in terms of emphasis on the quality of the final outcome produces; process-based in terms of improvements in administrative procedures, intra-organizational communications; behavior based in terms of risk-taking, innovation in decision-making, orientation for organizational change (Moon, 1999, pp.32-33). According to Moe and Gilmour (1995) the four principles of managerial entrepreneurship as assumed in the government management (reducing red tape, promoting customer satisfaction, empowerment of employees, sustaining cost-efficient performance) and proposed in the Gore's report on the National Performance Review (1993) are leading to a clash between the legal and business cultures. Governing public organization in an entrepreneurial way means to opposite to bureaucratic model seen as unfit and inefficient for managing to manage the dynamics of the marketplace, information age, and the knowledge-based economy and implies that individuals acquire specific entrepreneurial skills, styles, and sensibilities. Thereby, introducing entrepreneurial principles in public organizations takes the risk of undermining some principles of the public provision as equity. The adoption of an ‘enterprise form’ to all forms of conduct takes the risk of making public organizations as no capable institutions to serve public mission and identity (Du Gay, 1996, pp.164-167). According to Bellone and Goerl (1992), public entrepreneurship should serve for sustaining an administrative responsibility including the possibility to generate new sources of revenue, providing new services and maintaining a coherence with the democratic values of the organization. Thereby, sustaining an entrepreneurial management should help to ensure a democratic governance in terms of citizenship and civic engagement as to serve the public interest. In the public sector, the citizen as a customer of government service tends to have always a stake in all services delivered and not only those necessarily consumed.

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Reinventing government following a market model is leading to a denial of citizenship by considering the citizens as consumers, the administrators as entrepreneurs pursuing their own individual self-interest rather than discovering a common public interest as to collaborate to achieve it. Administrators as entrepreneurs tend to pay more emphasis on innovation and creativity orientation and less attention on values like responsiveness and democratic accountability as to deny the public to have a role in choices about public funds and programs (Denhardt & Deleon, 2000, pp.94-96). An entrepreneurial government model is leading to a disconnection between legal values and practices embedded whilst government institutions are agents of the sovereign under public law, legal and political accountability (Moe & Gilmour, 1995, pp.142-143). A neo-managerialist view driving public managers to play an entrepreneurial leadership role tends to conflict with constitutional values concerning fairness, justice, representation and participation (Terry, 1998, pp.196-198). NEW TECHNOLOGIES FOR REFORMING PUBLIC ORGANIZATIONS AND CREATING PUBLIC VALUE The adoption of technology in the public sector helps for engendering innovation in government and for democratizing the relationship between public organizations and citizens. Technology in public administration refers to the concepts of e-government and e-governance as issues of public management reform agenda and cultural change for creating and maintaining public value. According to the OECD (2014) «e-government refers to the use by governments of information and communication technologies (ICTs), and particularly the internet, as a tool to achieve better government» (OECD, 2014, p.6) and public value refers to: goods or services satisfying the desires of citizens and clients; production choices meeting citizen expectations in terms of justice, fairness, efficiency and effectiveness; public institutions reflecting citizens’ desires and preferences; fairness and efficiency of distribution: legitimate use of resource for accomplishing public purposes; innovation and adaptability to changing preferences and demands (OECD, 2014, 6). E-government refers to the use of information technology to deliver government information and service online as to enable and improve the efficiency of government services provision (West, 2004, p.16). E-governance refers to the use of ICTs driving government to interact democratically with citizens by increasingly promoting a meaningful citizen engagement. E-governance objectives concern: a policy framework; enhanced


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public services; high quality and cost-effective government operations; citizen engagement in democratic processes; administrative and institutional reforms (Dawes, 2008, pp.586-587). E-governance is the performance of the government in ensuring the process of service delivery in terms of the application of ICTs to government processes for improving accountability, responsiveness, and transparency (Qian, 2010). ICTs permit to build new governance structures bridging communities, service providers and policy makers relying on citizen participation and engagement in making public policies (Al-Sudairy & Vasista 2012). ICTs permit to alter or create new governance structures or processes reifying ideas or issues in normative governance as a set of values related to transparency, accountability, impartiality that governance would enable (Bannister & Connolly, 2012). ICTs offer an opportunity to transform the government and improve the quality of government services by increasing productivity and reducing costs and providing a better quality of services (Gil-Garcìa & Pardo, 2005, p.188). ICTs open up a digital-era-governance. The key components are the following ones (Dunleavy, Margetts, Bastow & Tinkler, 2005, p.467): reintegration in terms of re-governmentalization, reinstating central processes, re-engineering back office functions, network simplification; needs-based holism: client-based or needs-based reorganization, interactive and ‘ask once’ information-seeking, agile government processes; digitization processes: electronic service delivery, disintermediation, automated processes, isocratic administration, and co-production, towards an open-book government. Public organizations having to operate in a new digital era should follow some directions to achieve better government (Lips, 2012, 244): to provide a clear leadership; to support the open and transparent government; to strengthen cross-government business capability; to improve operational ICT management. E-government contributes to enhance the perception of responsiveness of public administration, to reinforce process-based trust by improving interaction with citizens (Tolbert & Mossberger, 2006). The Internet has improved the ability of citizens to actively interact with government to get information. E-government has the potential for leading to e-citizens working for the government and developing trust in government (Reddick, 2005). The transformational potential of e-government relies on providing services citizen-centered, access to information as public key resource of government (Brown, 2005, pp.247-248) and building an enduring relationship between citizens, government and business by providing government information as to improve quality of services and foster citizens’ participation in democratic

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processes (Fang, 2002). Technology-enabled reforms lead to the transformation of public sector organizations as responsive institutions creating and delivering the expected value for citizens and sustaining e-government initiatives in order to serve democratic principles of equity, impartiality and fairness (Cordella & Bonina, 2012; Cordella, 2007, pp.272-273). TOWARDS A DIGITAL PUBLIC ECOSYSTEM. BUILDING GOVERNMENTS 2.0 According to the OECD (2014) «digital Government refers to the use of digital technologies, as an integrated part of governments’ modernization strategies, to create public value. It relies on a digital government ecosystem comprised of government actors, non-governmental organizations, businesses, citizens’ associations and individuals which support the production of and access to data, services, and content through interactions with the government» (OECD, 2014, p.6). «Digital technologies refer to ICTs, including the Internet, mobile technologies and devices, as well as data analytics used to improve the generation, collection, exchange, aggregation, combination, analysis, access, searchability and presentation of digital content, including for the development of services and apps» (OECD, 2014, p.6). The future of public services delivery and production will depend on governments able to create internet-enabled and digital platforms proceeding beyond principle and criteria are driven by traditional and already experimented public management doctrines (Fishenden & Thompon, 2013, p.16). Governments tend to emerge as an infrastructure or platform becoming an ecosystem of economic and social innovation and accountability making available and accessible sufficient quality and useful data to citizens, consumers, and businesses (Harrison, Pardo & Cook, 2012, p.905). According to an open government ecosystem perspective government organizations tend to play a central role within networked systems in order to achieve some results in terms of innovation and good government (Harrison, Pardo & Cook, 2012, p.907) in order to win the challenge of being leader in building new institutions of governance because digital technologies as user-friendly tools and social networking seem to proceed towards a greater democratization of society. Authority and legitimacy of government and public policy more and more dependent on interactive democracy imply that policy-makers should ensure a convincing relationship between citizen input and policy outcomes by providing a trusted public space for participation and engagement in policy deliberation.


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Building policy relies on combining expertise and resources emerging in the market and civil society (Tapscott, 2008, pp.5-6). Building an open government ecosystem relies on public management capable of recognizing and understanding the network of interdependencies and interactions existing among the components of the system. Open government tends to emerge as a positive goal in the interest of the government and for society as guiding norm for public values such as accessibility, transparency and citizen engagement (Nam, 2012, pp.364-365). Building an open and digital government by embracing ICTs relies on the implementation of three principles: transparency, participation, and collaboration (Chun, Shulman, Sandoval & Hovy, 2010). Government 2.0 refers to the government institution acting to serve as a mechanism for producing a collective action by using technology for better solving collective problems by building a participatory government engaging citizens in the business of government, promoting collaboration with citizens in the design of government programs (Reilly, 2010, p.14). Government 2.0 implies a new vision and perspective for transforming government as ‘citizen-centric’ institution in the delivery service oriented to promote collaboration among various stakeholders (Tapscott, 2008). Governments embracing new digital and emerging technologies are creating and encouraging innovation by transforming service delivery and becoming smarter institutions. Governments are considered as smart institutions by employing technologies and embracing innovation for performing the activities of governing (Ramon Gil-Garcia, Helbig & Ojo, 2014, pp.11-12). Web 2.0 technologies, including blogs, wiki, social networking, hubs, web-based communication modes, video-casting and sharing, audio sharing, virtual worlds, micro-blogs, concern a collection of social media through which individuals can actively participate in creating, organizing, sharing and commenting Web content and forming a social network of interacting and linking to each other (Dixon, 2010, p.423). Web 2.0 offers new opportunities for driving e-government to move from simple automatization towards integration and participation as to integrate knowledge and support government services leading to active engagement of citizens in government for strengthening and enhancing the participation of citizens (Dixon, 2010, pp.444-445). Government 2.0 enables a ‘citizen-centered’ transparency calling for engaging and sourcing the citizenry for

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policy innovation, encouraging collaboration between citizens and government and among citizens (Nam, 2012, pp.17-18). The advent of digital technologies should permit to build a government 2.0 and identify some characteristic that permits to qualify government as smart institution in front of the citizens: integration in terms of information sharing for better communication, response and coordination; innovation as new ways to deliver services and conduct operation; evidence-based decision making based on data-driven decisions and intensive use of data enable governments to make more informed decisions and improve the effectiveness of public policies and programs; citizen centricity implies that government tend to use ICTs to satisfy citizens’ needs providing personalized information and services; the use of digital technologies helps the sustainability in terms of ecological implications of the development; governments tend to promote a creative environment encouraging creativity for smart citizens; effectiveness, efficiency, equality, entrepreneurialism, citizen engagement, resiliency. Smart government initiatives including citizens, private companies, and no profit organizations rely on government and non-government actors developing smart initiatives for improving the quality of life for people and communities (Ramon Gil-Garcia, Zhang & Puron-Cid, 2016, pp.526-530). Governments should design and implement digital technologies for ensuring greater transparency, openness, and inclusiveness of government processes and operations; encouraging engagement and participation in policy making and in service design and delivery; creating a data-driven culture in the public sector; ensuring a coherent use of digital technologies across policy areas and levels of government by integrating digital government strategies in all public administration reforms and strengthening international co-operation with other government to better serve citizens and businesses as to maximize the benefits emerging from early knowledge sharing and coordination of digital strategies internationally (OECD, 2014). New technologies help to support active co-production empowering the role of citizen as responsible partner in the delivery of public services and contribute to a networked co-production driving the transition from a government/agency-centered to community/citizen-centred approach where citizens interact with government agencies providing the framework and enabling citizens to co-produce (Dunleavy, Margetts, Bastow & Tinkler, 2005, p.487). The Internet has the potential of empowering citizens, individually and


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collectively in terms of productive capabilities and experimenting new channels of collaboration (Linders, 2012, pp.451-452). CONCLUSIONS Governments should rethink about a fundamental and effective change concerning the way to use ICTs in an information and digital era. The Internet and ICTs should contribute to enhance democratic processes opening up to new spaces of governance in the transition to government 2.0; make government easier for businesses and individuals to deal with government; enable the government to offer services and information through new Internet and social media; to improve communication between different parts of government. Public organizations serve the public interest as responsive institutions by embracing ICTs for connecting with citizens and sustaining public trust between public institutions and citizens by improving openness, transparency, governmental legitimacy and accountability. Rethinking public entrepreneurship relies on facing the entrepreneurial challenge of reforming public institutions should contribute to driving strategic and organizational change. The meaning of public entrepreneurship relies on building public institutions knowledge oriented as technology-enabled platforms for sustaining public and social value co-creation and co-production in order to support cultural change and innovation. ICTs help to rethink the mission of public organizations and the role of public sector within society and communities. The advent of technology in advanced devices and tools permits public organizations and social communities to rediscover the value of belonging to a state as a community. New technologies drive modernization of public sector leading public organizations to build a permanent culture of transparency and openness encouraging citizens to participate in public affairs, interact and engage with public administration. REFERENCES Al-Sudairy, M.A.T., and Vasista, T.G.K. 2012. Fostering knowledge management and

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DEVELOP SPECIFIC BUDGET POLICIES TO REDUCE POVERTY IN ALBANIA Zamira SINAJ1

ABSTRACT Poverty Assessment based on a multidimensional definition of poverty, and in addition to income or consumption deprivation, the first monetary terms, but also from non-monetary context of poverty is defined in relation to the inadequacy of a number of social welfare measures that have related to income, such as education, health, empowerment, access to basic services and infrastructure. The concept of poverty has evolved over time. Poverty, which had previously been seen only in the context of revenue, now seen in a broader concept that derives from and is closely linked to politics, geography, history, culture and social features. Poverty is associated with specific demographic characteristics. Poor households tend to have: more members, more children, and more likely to be unemployed family members, poor people suffer from lower access to basic services, such as schools, health centers, phones, water, and sanitation. So the probability of being poor is provided through several characteristics, such as geographical aspect, household characteristics, and profile of education. Knowledge of the characteristics of being poor is very important for determining the policies and measures for poverty elimination. KEYWORDS Poverty; the poverty gap; remittances; employment; labor markets; Albania.

INTRODUCTION Fiscal policies directly affect the level of informal economy of a country. Some actions were taken by the government, and may have a positive impact in reducing the informal economy, but there are others that can have an unspecified impact. Government reforms of the tax system, such as the implementation of the flat tax on personal income and gain or reduction of social security contributions may have an impact both positive and negative on the informal economy. Why this dual effect? It is known that a reform is more used to increase government revenue through tax base expansion. the latter growth means reducing the informal

1 Department of Business. University of “Ismail Qemali”, Vlore, Albania, [email protected].

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economy by encouraging informal business to operate as formal. Regardless of whether taxes or social contributions are really sitting by the Albanian government, because there are some discussions and criticism from the IMF and WB taxes actually increased and not reduced, we will examine only the first impact of these two. The Office of the Commissioner for Human Rights sees poverty as "a human condition characterized by constant or chronic deprivation of resources, opportunities, solutions, security, the power needed to enjoy an adequate standard of living and fundamental rights Civil, cultural, economic, political and social. Poverty Assessment relies on a multifaceted definition of poverty and, in addition to the deprivation of income or consumption, poverty is also defined as the inadequacy of a range of non-income-related social care measures such as education, health, Use of basic services and infrastructure”. The following material deals with theoretical concepts on indicators and types of poverty, influencing factors and the characteristics of how and when poverty is emerging. These indicators are presented in the case of Albania by giving the trend in years of poverty. Analyzing determinant indicators such as employment and migration gives us an overview of the development of key national and regional poverty rates. In addressing this issue, the characteristics of these indicators and issues related to the poverty trap, the dual labor market, the remittance trend or the informality accompanying it emerge. THE RESEARCH OBJECT AND THE METHODOLOGY USED The subject of this study is the presentation of the socio-economic and living standards in Albania in the years 2002-2008, regarding housing conditions, education and health, and comparison of these indicators in 2002-2008. Poverty, employment, informality, and migration are often considered as related phenomena. Many empirical studies have shown particular links to poverty with each of the above elements and only recently, different scholars have tried through empirical analysis to study simultaneous relationships between them. This paper is based on the Household Survey Data ‘Living Standard Measurement Survey’, conducted in Albania by INSTAT in 2002, 2008. The analysis is based on data from these two years to see the development that has Albania suffered in the context of poverty.


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Through the simultaneous study of these links, the following objectives are to be achieved: • Identify the dimensions of poverty, its types studied and compared over the years. At the same time, during the analysis, the determinants of monetary and non-monetary determinants of being poor as well as their significant significance are analyzed. • Identify the links between characteristics of internal and external migrants, temporary and permanent migration, remittances and impacts on poverty. • Identify that informal employment has a causal impact on poverty Families, mainly through low wages. However, other studies Focus more on the causes opposed to poverty in informality, stemming from a range of constraints imposed by poverty on the employees. • Identify informality as a mechanism by which the poor have to face and the forms of his occurrence. • Identify issues and directions that may require more in-depth research work in the future in this area of study • Assist policymakers to draft more comprehensive policies, taking into account all the characteristics and factors that cause poverty. KEY FINDINGS The analysis of poverty indicators and declarative and regressive determinants describes the significance and diversity of these indicators in determining poverty and improving these indicators over the years. The forms of its appearance on the family, geographical or spatial and socio-economic characteristics are seen. As a result of migration, Albania has experienced major demographic developments over the years. Domestic migration has led to the rapid growth of urbanization and in 2008 half of the population lives in the city, compared to only one-third in 1989. While foreign emigration and remittances from overseas immigrants are a source of income for many families Poor. Demographic trends have strongly influenced the structure of the age and gender of the regional population in Albania and the rapid aging of the workforce. The fact that a large part of informal employees is poor, and vice versa, supports the view that there is a mutual relationship between poverty and informality in Albania. Poverty includes all those families that are under a certain income line, while informality, on the other hand, includes the largest percentage of low-income workers.

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Informality is a widespread phenomenon and seen as an obstacle to the country's economic growth and prosperity. It is a mechanism with which to cope. The poor and appears in the form of payment of formal payments for services that are free and in that of non-payment of legal fees and obligations. Its impact on poverty is such that it can deprive the poor in accessing public and social services. Key definitions Poverty The poverty line is called the minimum level of consumption and represents the point of division between the poor and those who are not poor. Poverty margins can be defined in different ways and include poverty, absolute, extreme and subjective limits. Absolute Poverty: An individual is considered poor if his level of per capita expenditure falls below the minimum necessary to meet the basic nutritional and non-food needs. Relative poverty where 60% of the median consumption per capita is used to identify the "poor" category and 40% to identify the "very poor" category. Under 60% are 13.8% of individuals. And as extremely poor 2.1% of individuals are defined Extreme poverty: The level of food poverty is the level of income per capita per month, it is necessary for an individual to take the minimum amount of calories in one country by age and sex (2'288 calories per day). Unemployment In accordance with the standards of the World Labor Organization, EUROSTAT classifies as unemployed persons all persons between 15 and 74 years old who during the reference week were: A) No job, for example, did not have a payable job and was not at work (for an hour or more) as self-employed; B) ready for work, eg being willing to work on a page or as self-employed before the end of the two weeks following the reference week; C) actively seeking work, for example, during the last four weeks ending with the reference week, had taken concrete steps to seek employment or to set up their own.


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The flat tax versus progressive tax on personal income Taxes on personal income The government has applied progressive income tax before 2007. The following table shows how this tax was applied. Accordingly, the taxes the government with more people with higher incomes. Then the new fiscal policy is set to switch from progressive taxes on that proportionate. This tax tip is usable by many eastern European countries. The flat tax could simplify the tax system more from the previous one which had a different level of taxation depending on income, on a system with a single unified tax on income. Also the flat tax will help: • Reducing the informal economy by encouraging businesses and individuals to pay taxes • Reduction of administrative bureaucracy and tax procedures. • Fair Taxation by applying the same tax rate for all income levels. • Attraction of foreign investment. • Reduce the opportunities to cheat with taxes Progressive tax and flat

There are arguments against the new tax regime. If in the above figure shows that.

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The tax regime does Increase barren individuals with incomes of more than 10 000 and less than 30,000 leke from 5% to 10%. While they have been more than 30 000 do have a tax lower than 10%, 15% and 20% to 10%. Furthermore, IMF argues that the flat tax regime does affect highlighting SOCIAL inequality by shifting the tax burden from enterprise income to individuals, primarily to families with an average income lower. In comparison with The progressive tax system, individuals with salaries above 14,000 leke do experience an increase in tire tax regime of the flat tax. Consequently, the duke reducing the amount of Net income for individuals Time Low and Moderate Income, do have an impact directly on aggregate demand in the market because these two topics customers are those who they called mass consumers. So even if businesses do have more fiscal incentives, THEY do to sell AKP Products being that individuals do have with money to AKP spent. For a trade like Albania where unemployment is high and labor costs (salaries) are low as a result of excess supply against a demand restricted to workers, flat taxes do decide on Safety in a set Unfavorable those individuals who as a single source of income tires wages. Under these conditions, considering the duke and the lack of a culture of paying taxes from individuals and businesses question arises: Is it better to be or not informal workers? The tax on business profits In the context of the flat tax, the government has reduced the tax rate on the profits of firms from 20 percent to 10 percent. One of the main reasons of this policy was to reduce the informal economy, especially tax evasion. The government will accept an income tax with the lower order have a less informal economy and thereby encourage firms to invest more. By reducing the tax on profits, firms operating as formal will consume more capital than labor force meanwhile that firms that used intensively workforce will be faced with higher labor costs. This change in the price factors will stimulate informal activities which are more labor-intensive to continue as such THE EFFECT OF THE REDUCTION OF SOCIAL SECURITY CONTRIBUTIONS Given that the informal economy in Albania is more associated with informal employment and self-employment, the government aimed to increase revenue on social security contributions are reduced by increasing the level and basis of formal employees. Currently, I sat share of Social Security (Table 6) by employers in order to declare all individuals employed and self-employed. This reform was accompanied by continuous inspections by other instances and had


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a positive impact on increasing the number of employed insured persons. But at the same time, the phenomenon of tax evasion was not averted, as most formal employees were paid wages lower, roughly the minimum wage in official statements that do firms or individuals. Even when salaries were high and should be paid through banks and not in cash, employers pay the wage of the lowest declared by banks and the Rest of Pages Actual pay in cash. In this way, they charge a price lower Social Security duke made and tire pension payments are time low. Currently, an employee with the Principal must accept thus major, but the duke Because the only source of income for these individuals is the salary they want to benefit as much as possible from this source, even though it may lose in future. Also, another reason why NOT individuals pay or pay AKP social security Many relates to the fact that usually they have to pay to get public services even though they may be Free, Free, such as the health service or a service other social. Table 1. The trend of changes in the social and health insurance scheme

1.Sigurimet shoqerore 38.5 29.5 24.5

Paguara nga punonjesit 11.2 9.5 9.5

me pagese

Paguar nga Punedhenesi 27.3 20 15

2.Sigurmet shendetesore 3.4 3.4 3.4

Totali (1+2) 41.9 32.9 27.9

1.Sigurimet shoqerore

Paguar nga i Vete- 32.2 26.2 23.0

Punesuari

2.Sigurimet shendetesore 7.0 7.0 7.0

Totali (1+2) 39.2 33.2 30.0 Source: Directorate General of Taxation

Also setting the minimum wage by reference to a detailed scheme is expected to cause major changes in private sector wage claims. Companies will face the consequences of these chain initiatives by the government, which would include an increase in the absolute value of the social security contributions and health and an increase in personal income tax. Employers will also face pressure expected this from a different direction, that of private sector employees who would prefer better to be undeclared rather than being held

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insurance and income taxes according to the government they will ensure the benefits of these payments. Taking into account these phenomena remains unclear net effect of a reduction in social contributions in reducing the informal economy. THE RESEARCH SCOPE AND METHODOLOGY USED The object of this study is to present the socio-economic landscape and living standards in Albania in the years 2010-2015, regarding living conditions, education, and health, as well as comparing these indicators in 2010-2015 years. Poverty, employment, informality, and migration are often regarded as interrelated phenomena. Many empirical studies have shown special about poverty in each of the above elements and just recently the different researchers have proven through empirical analysis to study the simultaneous relationships between them. This paper is based on data from the survey on households' Measurement Survey of Living Standards, which is carried out in Albania, INSTAT in 2010, 2015. The analysis is based on data from the past two years to see the development that has Albania suffered in the context of poverty. Through the simultaneous study of these connections, they intended to achieve the following objectives: • to identify the dimensions of poverty, its types and studies compared to years. At the same time, the analysis highlighted the determining monetary and non-monetary factors in being poor and analyzed their significant importance. • to identify the links between the characteristics of internal and external migrants, temporary and permanent migration, remittances and their impact on poverty. • To identify that informal employment has a causal impact on poverty, families, mainly through lower wages. However, other studies focus more on the causes of poverty in the opposite informality, stemming from a series of limitations that poverty imposes on employees. • Identify informality as a mechanism by which the poor have to face and forms of its appearance. • to identify the issues and areas that may require a more in-depth research in future studies in this area • Help politicians to develop a more comprehensive policy taking account of all the characteristics and factors that cause poverty.


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CONCLUSIONS The government's target to reduce poverty requires analysis of the complex relationship between poverty and migration, employment and informality. Between them, there is a dynamic relationship in time and implications on poverty, should constitute the biggest concern for policymakers. In this respect some of the possible recommendations for reducing poverty would be:

It is necessary for the government to plan for these issues to be resolved as part of a comprehensive package of policies that deal with poverty eradication, employment rights and improving public services in general.

State institutions are more powerful and efficient and functional

Policy of pandering but supportive Building a trusting climate of dialogue between all actors in society, including the state, business, trade unions and community is a necessity to get acquainted with real problems and characteristics of poverty and to ensure mitigation of this phenomenon and its consequences his. REFERENCES Arandarenko, M., Vukojevic, V., Gajo, M., and Manova Stavreska, A. 2008. Labor Costs

and Labor Taxes in the Western Balkans. Available online: http://siteresources.worldbank.org/INTECAREGTOPHEANUT/Resources/Betcherman&Arandarenko-labor_taxes_western_balkans.pdf.

Banka Boterore, Shqipëria, rishikim i sistemit të sigurimeve shoqerore. Raport Nr. 37594-AL

Banka Botërore. 2003. Shqipëria: Varfëria gjatë Rritjes. Buehn, A., and Schneider, F. 2007. Shadow Economies and Corruption all over the

World: New Estimates for 120 Countries. Economics. Center for the Study of Democracy. 2003. The informal economy in the EU accession

countries: Size, Scope, Trends and Challenges to the Process of EU Enlargement, Bulgaria.

DJLMA, 2013. Mbrojtja sociale në Shqipëri, Fields, G. 1980. Varfëria, Pabarazia dhe Zhvillimi, New York: Cambrigde University Press. Gërxhani, K. 2004. Tax Evasion in Transition: Outcome of an Institutional Clash? Testing

Feige’s Conjecture in Albania. European Economic Review 48(4), 729-745. International Monetary Fund. 2008., Albania: Poverty Reduction Strategy Paper National

Strategy for Development and Integration (August).

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Keen, M., Kim, Y., and Varsano, R. 2006. The Flat Tax(es): Principles and Evidence, IMF Working Paper.

Marc, A., and Kudatgobilik, Z. 2003. Poverty and Informality in Southeast Europe. In Center for the Study of Democracy. The informal economy in the EU accession countries: Size, Scope, Trends and Challenges to the Process of EU Enlargement (pp.115-136), Bulgaria.

Olters, J.P. Ekonomia informale në Shqipëri:A përbën ajo një pengesë për zhvillimin ekonomik?

World Bank Institute (August 2014), Introduction to poverty analysis INSTAT: Poverty trends www.instat.gov.al

World Bank Institute (December 3, 2007), Report No. 40071-AL, Albania Urban Growth, Migration and Poverty Reduction. A Poverty Assessment.

World Bank Institute, Appendix 1 Poverty Definition, Measurement, and Analysis World Bank Institute. 2014. INTRODUCTION TO POVERTY ANALYSIS (August 2014). World Bank. 2002, Basic Information Document, Living Standard Measurement Study,

Albania, Development Research Group.


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AN INSIGHT INTO ENTREPRENEURSHIP IN ROMANIAN CULTURAL-CREATIVE INDUSTRIES Cristina LEOVARIDIS1 Gabriela POPESCU2 ABSTRACT This paper aims to provide an insight into the current state of entrepreneurship in Romanian cultural-creative sector. At the beginning, it comprises a synthetic overview of the literature on entrepreneurship and on the current statistical situation of entrepreneurship at national and European level. Then the paper emphasizes the role of cultural-creative industries in the contemporary economy, also at the national and at the European level, after a brief theoretical delimitation of the concept “creative industries”. Our empirical research aimed to outline an overview of the entrepreneurial experience of some Romanian owners of SMEs in various cultural-creative fields, using qualitative methodology through in-depth face-to-face interviews based on semi-structured interview guide addressed to a group of entrepreneurs in Bucharest. For most of them, the reasons for opening an SME was either an obligation – wages too low at the organization where they were previously employees, either an effect of a personal need for autonomy and creativity or a passion in a specific field. All interviewed entrepreneurs had specific knowledge and know-how in the area in which developed SMEs. Most entrepreneurs are discontented by the bureaucracy, the tax policies, and the too changing legislation, but also by the professional and human quality of their employees. Examples of good practices in their field are related to the tenacity, creativity, and ability to be self-taught of entrepreneurs in the cultural-creative sector. General recommendations for authorities included reducing taxes, bureaucracy and law changes, simplifying the procedures for accessing European funds; there are also suggestions for the young entrepreneurs in the cultural-creative area. KEYWORDS Entrepreneurship; cultural-creative industries; SMEs; youth.

1 National University of Political Studies and Public Administration, Faculty of Communication and Public Relations, 30A Expoziției Blvd., Sector 1, 012104, Bucharest, Romania, [email protected]. 2 National University of Political Studies and Public Administration, Doctoral School, 30A Expoziției Blvd., Sector 1, 012104, Bucharest, Romania.

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A SYNTHETIC OVERVIEW ON ENTREPRENEURSHIP. THE CURRENT SITUATION OF ENTREPRENEURSHIP IN ROMANIA AND IN EUROPE The entrepreneurship is important because of its four implications (European Commission, 2003, pp.6-8): it contributes to job creation and growth, entrepreneurship is crucial to competitiveness, it unlocks personal potential, it supports societal interests. „To bring Europe back to growth and higher levels of employment, Europe needs more entrepreneurs. Entrepreneurship is a powerful driver of economic growth and job creation: it creates new companies and jobs, opens up new markets, and nurtures new skills and capabilities (…) Commercializing new ideas improves productivity and creates wealth” (European Commission, 2013, pp.3-4). There is no generally accepted definition of entrepreneurship all over the world, especially because it is a very complex concept. The Schumpeterian tradition has the greatest influence on the contemporary entrepreneurship literature: the innovative entrepreneur forces the market to adapt to its innovations and competitors to seek answers to the new conditions of competition, innovation being considered as a ‘creative destruction’ (Glodeanu et al., 2009, pp.30-31). Some organizations, such as OECD, insist on the introduction of new ideas not only in the market, but also within existing firms: “it has typically been referred to as an action, process, or activity, in which innovation plays a significant role. Substantial entrepreneurial behavior can occur among existing entrepreneurs and existing firms, including longer established firms, and the systematization of innovation and commercialization within existing firms” (OECD, 2004, p.9). More, Shane (2003, p.3) emphasizes the role of entrepreneurial individuals, explaining entrepreneurship as the results of some human characteristics as a willingness to bear uncertainty, need for achievement etc.: ”entrepreneurship is a self-directed activity that does not occur spontaneously from the presence of technological or industrial change. It requires the action of individuals who identify and pursue opportunities”. Peter Drucker (1993, pp.24-25) also emphasizes the role of entrepreneurial initiative. According to him, the entrepreneur always looking for the change, responds it and exploits it as an opportunity. In official documents of the European Union, the entrepreneurship represents „the mindset and process to create and develop economic activity by blending


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risk-taking, creativity and/or innovation with sound management, within a new or an existing organization” (European Commission, 2003, p.6). There is a view shared by more and more according to that entrepreneurship is an attitude and the result of lifestyle choices that must be considered at an early age (Glodeanu et al., 2006, p.118). By contrast, from a management perspective, Sahlman and Stevenson differentiate between entrepreneurs and managers, entrepreneurship being a way of managing that involves pursuing opportunity without regard to the resources currently controlled. From another perspective, an economic one, Hebert and Link characterizes the entrepreneur as “someone who specializes in taking responsibility for and making judgmental decisions that affect the location, form, and the use of goods, resources or institutions” (cited in Audretsch, 2003, p.3). In recent years, other authors (Uzunidis et al., 2014) are interested in the origin of the entrepreneur's function, examining the structure of the entrepreneur's “resource potential” (the set of knowledge, relations, and financial resources gathered together by the entrepreneur) and the role of the socio-economic background. These elements (resource potential, market, economic organization and public policy) link the individual entrepreneurial characteristics and the environmental factors to explain entrepreneurship, and may be also a way to study entrepreneurship in different social, economic and political context. A few years ago, a Eurobarometer survey showed that a majority (58%) of the EU respondents would prefer to work as an employee and only 37% would rather be self-employed. Self-employment has become a less attractive prospect than it was in 2009 when 45% said they would rather be self-employed. In 18 out of 27 countries, a majority of respondents say that they would prefer to be an employee. (European Commission, 2012a, p.5). Regarding the difficulties that Europeans perceive in starting a business, the majority of respondents believe that the lack of financial support is the main difficulty, followed by the complexity of administrative process and difficulty in obtaining sufficient information about how to start a business (European Commission, 2012b, p.18). Although younger respondents are more inclined to express a preference for self-employment, 45% of 15-24 year-olds say they would prefer to be self-employed as opposed to 35-37% of people in the three older age groups 25-39,

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40-54, 55+ years (European Commission, 2012b, p.18), the self-employment rate of older workers is higher than for other age-groups: “older workers tend to have more experience and higher levels of human capital, as well as larger capital reserves and better access to credit with which to start a business. In all, only 3% of European self-employed workers are aged 15-24, compared with 42% who are over the age of 50, and 56% aged 25–49” (Hatfield, 2015, p.13). In Southern and Eastern Europe, self-employment remains relatively high, but these countries are yet to see a growth in total employment. In Northern and Western Europe, Germany, Sweden, and Norway are beginning to see rising employment, but these jobs have been for employees, while the number of self-employed workers has fallen (Hatfield, 2015, p.3). Just under 14% of workers in the European countries are self-employed. The economies of southern and eastern Europe have the greatest share of self-employed workers (the highest rate is in Greece, where 30.4% of workers are self-employed, followed by Italy - 21,9%, Poland - 17,7%, Czech Republic - 17,1% and Spain - 16% etc.). They traditionally had a high proportion of self-employed workers, due to the predominance of agricultural, service-based and informal work in these countries. At the other pole, northern European countries, including Norway (6.6%), Estonia (8%), Luxembourg (8.2%), Denmark (8.3%) and Sweden (9%), have the lowest proportion of self-employed workers; countries with more active labor market policies have a lower incidence of informal work, which may be one of the reasons why self-employment is lower in northern and western European countries (Hatfield, 2015, p.8). Romania is in the middle ranking, with 19,4% of workers (24,5% of male employment and 12,8% of female employment) being self-employed and 1,1% employers (1,5% of male employment and 0,7% of female employment) (NIS, 2016, p.102). The earnings of the self-employed persons in Europe are falling relative to employees’ earnings, that is why more and more workers are looking for more hours or another job. Self-employment, while offering greater freedom, can also offer significant challenges: self-employed persons are subject to greater financial instability, particularly when starting out or when businesses are not performing well, their work can be irregular and insecure (Hatfield, 2015, p.4). In Romania, the perception regarding entrepreneurship is quite similar to that in Europe: almost half of Romanians (48%) answered they would prefer to be entrepreneurs rather than employees. Over a half of respondents in Romania


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(54%) say that they are attracted to the personal independence or self-fulfillment that comes with self-employment, lower than the 62% of people who say this at EU level; over a quarter of respondents in Romania (26%) say they would like the freedom to choose the place and time of their work, 30% of people give this answer across the EU; the same number people in Romania (26%) say they are attracted by better income prospects, a result which is higher than the EU average (16%). So, Romanians are more likely than the EU respondents to say that they favor self-employment because of the better income prospects (European Commission, 2012c, pp.2-3). In terms of reasons for unfeasibility of becoming self-employed, half of respondents in Romania (48%) say they lack the financial resources to become self-employed, which is very high in the EU context (21% of respondents give this answer at EU level), followed far away by other reasons: the current economic climate is no good for a start-up (12% comparable to 7% at the EU level), not enough skills to be self-employed (8% comparable to 7% at European level), no business idea (7% vs. 3%) (European Commission, 2012c, p.5). According to a Romanian study conducted by Ernst&Young, based on questionnaires and interviews with Romanian entrepreneurs of companies in various stages of development, 88% of entrepreneurs say that access to finance is difficult or very difficult (especially for entrepreneurs under 40 years), needing help to access funding; 94% of entrepreneurs want the environment fiscal and regulatory framework to be more predictable; 81% of entrepreneurs consider that business failure is perceived as barriers to starting new business, as a failure in career or indicates lack the necessary skills, so they would like society to tolerate business failure; and 52% expect that improving communication of entrepreneurs’ success stories to have a greater impact on entrepreneurial culture (Ernst&Young, 2013, p.4). THE ROLE OF CULTURAL-CREATIVE INDUSTRIES IN CONTEMPORARY ECONOMY Within a period of about 60 years (1940-2000), it was moved from the term cultural industry to cultural industries and then to creative industries, but all these terms were always based on the constant tension between culture and economy. Culture, initially considered from the point of view of states as a marginal expense, decorative and ensuring prestige, began to get increasingly more at

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the center of attention for government decision-makers, as a potential economic resource, starting to be formulated public policies for the development of this sector. Terms such as the ‘creative sector’, ‘creative industries’, ‘cultural industries’, ‘creative economy’ etc. describe a wide range of activities that involve the commercial exploitation of creative and artistic inputs. ‘Cultural industries’ are those industries producing and distributing goods or services which at the time they are developed are considered to have a specific attribute, use or purpose which embodies or conveys cultural expressions, irrespective of the commercial value they may have. Besides the traditional arts sectors (performing arts, visual arts, cultural heritage - including the public sector), they include film, DVD and video, television and radio, video games, new media, music, books, and press. “Creative industries” are those industries which use culture as an input and have a cultural dimension, although their outputs are mainly functional. They include architecture and design, which integrate creative elements into wider processes, as well as subsectors such as graphic design, fashion design or advertising. At a more peripheral level, many other industries rely on content production for their own development and are therefore to some extent interdependent with cultural-creative industries, they include among others tourism and the new technologies sector (European Commission, 2010, pp.5-6). According to United Nations Conference on Trade and Development (UNCTAD, 2010, p.8), the creative industries “are the cycles of creation, production, and distribution of goods and services that use creativity and intellectual capital as primary inputs; constitute a set of knowledge-based activities, focused on but not limited to arts, potentially generating revenues from trade and intellectual property rights; comprise tangible products and intangible intellectual or artistic services with creative content, economic value and market objectives; stand at the crossroads of the artisan, services and industrial sectors; and constitute a new dynamic sector in world trade”. They include: heritage (traditional cultural expressions – art crafts, festivals and celebrations; cultural sites – archaeological sites, museums, libraries, exhibitions, etc.); arts (visual arts – painting, sculpture, photography and antiques; performing arts – live music, theatre, dance, opera, circus, puppetry, etc.); media (publishing and printed media – books, press and other publications; audiovisuals – film, television, radio and other broadcasting); functional creations (design – interior, graphic, fashion, jewelry, toys; new media; creative services – architectural, advertising, cultural and recreational, creative research and


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development, digital and other related creative services) (UNCTAD, 2010, pp.8-9). Europe is the second-largest cultural-creative industries market, after Asia-Pacific, accounting for US$709b of revenues (32% of the global total) and 7.7 million jobs (26% of all cultural-creative industries jobs). Europe remains a trendsetter on the global stage – for example, the UK is a leader in the art market due to its contemporary art, and French company Publicis is a key player in the global advertising industry (Ernst&Young, 2015, p.16). The creative and cultural industries contribute to 4.2% of Europe’s GDP. The sector is its third-largest employer in Europe, after construction and food and beverage services activities, such as bars and restaurants. Europeans directly or indirectly employed in creative and cultural activities represent 3.3% of the EU’s active population. Performing arts (1.234.500), visual arts (1.231.500) and music (1.168.000) employ more than 1 million people each, followed by advertising (818.000), books (646.000) and film (641.000) (Ernst&Young, 2014, p.10). Cultural and creative workers have four specific features (Ernst&Young, 2015, p.18): youth (creative activities contribute significantly to youth employment – in Europe, this sector employs more people aged 15-29 years than any other sector: 19,1% of total employment in this sector compared to 18,6% in the rest of the economy); high productivity (cultural-creative jobs in some sectors contribute more to GDP than the economy-wide average - in South Korea, the productivity of film and television workers is twice the national average); high level of education (workers in this sector are more educated than the average); independence and entrepreneurship (cultural-creative industries are very fragmented and creation driven by small businesses or individuals – in Canada, more than half gaming developers are independent operators). In Romania, the percentage of gross value added generated by the cultural-creative sector in the total national gross added value shows an upward trend in the 2009-2013: in these five years, this figure had a growth rate of 55.5%, from 4.2% in 2009 and reaching a considerable 6.5% in 2013. Within this interval, the gross added value of the entire Romanian economy increased by 17%, while the cultural-creative sector was one more dynamic, registering a significant growth rate of 82.4% (NICRT, 2015, p.61). Considering these characteristics of cultural-creative employees, and especially the last mentioned one, we will refer to a recent study regarding

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entrepreneurial interests of Romanian 15-25 years aged young people in creative fields. Among the most attractive creative professions among young people, the top positions are occupied by the profession of journalist (12.2%), photographer (11.8%) and architect (10.9%). On the last positions there are: membership in a rock / pop band (1.2%), sculptor (1.2%), instrumental music performer (0.7%) and master orchestra (0.5%). It is possible that the attractiveness and interest in certain professions to be influenced or maintained by the perception of the reputation of those professions within the society (Moise et al., 2011, p.2). Regarding entrepreneurial orientations in the creative industries, of those that express interest and orientation towards one of the creative professions, 57% said they would open a business if they have a money reserve. Of the 57% who say it would open a business if it has the money necessary, the distribution of which would open a business in areas that arouses interest are: the percentages show a high attractiveness to areas of investment such as hotels/restaurants (26%) or stores/sites of online sales (22%), and only 6% of young people interested in creative arts and in starting a business say they would invest in a business in creative fields such as music recording studios, publishing houses, advertising. Other areas in which they would develop a business are architecture, aviation, veterinary medicine, discotheque, pharmaceutical, cosmetics, weddings organizing, school dance. In terms of genre, most boys express their preference for the profession of computer programs developer, and girls - for a fashion designer (Moise et al., 2011, pp.6-10). CHARACTERISTICS OF ENTREPRENEURSHIP IN ROMANIAN CREATIVE INDUSTRIES Research methodology Our empirical research was conducted on a group of 13 Romanian entrepreneurs of different firms in cultural-creative industries in Bucharest. The research used qualitative methodology through in-depth face-to-face interviews based on semi-structured interview guide. The reason for using the qualitative methodology is the nature of the surveyed subject: only such a method can help the researchers to obtain the details of so complex experience in a person’s professional but also personal life such as the


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entrepreneurial experience. Each interview lasted about 50-60 minutes and interviews took place in January-February 2017. Our research aim was to outline an overview of the entrepreneurial experience of some Romanian owners of SMEs in various cultural-creative fields, just to capture an area as large of entrepreneurial experience. The specific objectives of the research were: identification the causes that have led respondents to establish a firm in a cultural-creative industry and to choose a field or another, the source of capital with which they started the business, the main stages of firm’s development from then until now, the access to European funds, the obstacles faced in trying to establish and develop their firm and the methods used to overcome them, the examples of good practices in the sector. The research also aimed to identify respondents' opinions on authorities' involvement in supporting entrepreneurship, on but also respondents’ recommendations addressed to the young entrepreneurs in the cultural-creative sector in order to encourage and support them to continue their small businesses. All questions in the interview guide are listed in Annex. The respondents’ lot is very heterogeneous, the demographic characteristics of interviewed entrepreneurs (age, gender, last school graduated/specialization, profession/function) and of their firms (cultural-creative sub-sector, number of employees, year when they were founded) are very different, in order just to cover a large range of types of entrepreneurs and companies and thus to provide a more objective and fair image on the analyzed economic sector. The respondents and their firms are enumerated in the following table.

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Table 1. Characteristics of firms and socio-demographic features of their entrepreneurs

Respondent Firm domain Year of firm

establishment No. of

employees Entrepreneur’s

age Gender

Profession/ function

The last school graduated/

specialization

R1 art production of souvenirs for tourism

2012 3 57 M architect Bachelor, Faculty of Architecture

R2 video production 2015 2 26 F film director and scenarist

Ph.D., Faculty of Film

R3 furniture design 2010 4 30 F interior designer Bachelor, Faculty of Architecture

R4 graphics 2008 2 45 F drawing teacher Bachelor, Faculty of Arts

R5 web design 2005 3 43 M engineer Bachelor, Polytechnic

R6 events organizing 2010 15 36 F marketing manager

Master, Faculty of Marketing

R7 online public relations 2009 5 42 F associate professor

Ph.D., Faculty of Communication and Public Relations

R8 sales promotion 2013 11 49 F engineer Master, Polytechnic

R9 translation office 2000 4 50 F English teacher Bachelor, Faculty of foreign languages

R10 knitwear design and production

2011 5 40 F engineer Bachelor, Polytechnic

R11 media agency 2008 19 46 F economist Master, Finance and Banking Faculty

R12 advertising (creative boutique)

2002 6 41 M art director Bachelor, Faculty of Arts

R13 digital advertising agency

2012 7 29 M programmer Master, Polytechnic


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Research results Depending on the reasons that led them to establish the firm, they are very diverse, according to the firm’s field but also to the entrepreneur’s previous occupation. Despite this apparent diversity, we could identify two categories of SMEs: „SMEs for survival” type and „personal initiative SMEs” type. The first category includes SMEs set up by their entrepreneurs because of lack of other alternatives to ensure their income, because wages too low they received compared to their effort („I had professional performance, but my assessment for salary increasing was achieved based on purely subjective criteria” – R11), especially for entrepreneurs who previously worked in public system („Life in state education system, salary... if my salary was not enough, I said I need to try something else” – R4; „in education is not life... I had no stable chair, and if I had, the pupils were as they were... low salary... and anyway I translated a lot… and I said I better begin my own business” – R9; „Education? Very hard. Low wages, we should give private lessons. But today, children no longer need tutoring, they take everything they need from the Internet. I started knitting...” – R10). The second category includes SMEs set up by their entrepreneurs because of the desire for autonomy („I think this desire for artistic independence mattered most in deciding to start my own business” - R2); for flexibility and creativity („I was tired of the various procedures, ideas, and stereotypes imposed by different employers” – R6); for harnessing the skills, experience or the clients they already had in the field („I already had collaborations with developers of websites and online platforms” – R7; „however, I was already working much in the field for friends, for friends of friends...” – R5; „It is my field of activity. I know to do that. And I do it terribly well... and professionals, real professionals in this field, we are very few...” – R13; „It corresponds with the skills which nature endowed me with and that I have developed in school” – R12). Regarding the source of capital used to start their own business, we may group responses in few categories: over a third of them saved money before, from the salary they had as employees (R3, R8, R9, R11, R12), some of them borrowed from the bank (R4, R5) but they also accessed European funds (R4), others borrowed money from family and friends (R8), and others used capital derived from profits earned in the previous business (R1) or from their business partner (R2). The main stages of the business development mentioned by the most of the respondents were predictable: all respondents describe a difficult period at the beginning, with losses or at least stagnations, but later, by obtaining customers and projects, the business began to grow (“At first I was just us and our friends, who collaborated with us from time to time, but I had no profit. It's hard to convince someone to give you money for online video production. A lot of work to convince customers that, first, they need exposure in digital, and secondly, that we, some novices, can do a good job. But I won projects, slowly, but surely” – R2). Then, the earned profits were reinvested – “development of the company was a normal, natural, based primarily on the idea to reinvest any gains and always bring added value” (R6).

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The vast majority of subjects (11 of 13) were employed previously established their own companies, either in companies in the same domain as the business they founded a later (most of those who were employed – “I worked in a large full-service advertising agency” – R12, “I was Marketing Director in a multinational company” – R8), or rarely in other areas and the field of current firm represents a hobby they have harnessed it (“I was a teacher at a high school” – R10). Only two respondents were never employees, but freelancers (R2 and R3). Referring to the reasons which led them to choose the field, we identified four main reasons: applying knowledge gained in faculty (“we are Polytechnic graduates and we are thinking about an agency since faculty. We have executed several projects, for less money that's right, before becoming a firm and we knew our capabilities and how we carry out a project. After I graduated, the only thing that changed was the décor, we no longer work anywhere (at home or in college) but we have an office where we go” - R13); desire to improve what exists in the field (“everywhere I travelled, I bought the same souvenirs, depersonalized, even ugly. I wanted something else” – R1; “I worked with many agencies as a customer and I have never been fully satisfied” – R6); education received from parents (“I grew up in a family where movies were very important. When you have a movie-fan mother that puts you look at Alien at 5-6 years, you develop different tastes. At 10 years, I knew replicas from Star Wars” – R2); passion for the domain (“I always wanted to do decoration, I was always moving furniture in the house, walking through furniture stores, making decoration plans for the whole family” – R3). In order to learn more about the business environment, more than half of the entrepreneurs surveyed (8 of 13) attended entrepreneurship courses, more some even management and finance courses (R5), accountancy (R10), marketing and cultural management courses (R6), MBA (R8), the rest say they “stole craft” or taught themselves or from collaborators. The most mentioned strengths of the business environment in Romania in general and especially in the cultural-creative sector were Romanian entrepreneurs’ enthusiasm, creativity, and tenacity. Weaknesses listed are more: instability of fiscal framework, bureaucracy, undeveloped market in certain subsectors of cultural industries (for example, online video production), increased competition from other firms in the field which hunt the best employees, changing legislation, emigration of young employees to other countries, lack of support for SMEs from state and banks. If not most respondents said they felt little or no involvement of the Romanian authorities, there are exceptions (R4) that stated that benefited from free training programs in entrepreneurship for women, but from European funds, while others were disappointed that they had to contribute 75% of the amount they were accessing from European funds (R2). Among the measures of support from national or European authorities that subjects recommend, we include: a policy for prevention the tax payment mistakes by entrepreneurs (”I think we need a mistakes prevention policy. See, in France, financial controller lets you know that you are wrong, it gives you time to fix it, then comes the fine


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if you have not repaired. Here he amends, then he controls you” - R1); increasing wages for young people, so they do not emigrate to other countries (”the labor market is a competitive market including in other countries. Wages here are not competitive. That's why young people leave. We need to be competitive in this regard with other European countries” – R5); simplifying the procedures for accessing European funds (”I think the procedures for accessing funds should be simpler. I wanted to do a partnership, but the person who wanted to associate with me did not take the financing, it was a very difficult procedure” - R1); stabilizing the legislation in domain, decreasing taxes („To really streamline the funding system, to lower the tax system, to facilitate contacts with business, stabilize the field legislation not to be sources of uncertainty” – R7). The most frequently mentioned barriers entrepreneurs have faced in starting or developing their business were: finding serious and competent employees (regardless of the field of firm and the level of qualification required) and taxes too high: ”it’s hard to find quality employees” (R4); „You cannot rely too much on employees” (R1); „although there were many knittwares factories, there is no more workers who know how to knit. I tried to find them at retraining courses. No way, none wanted to come to work. I'm working with some retired women now” (R10); „high social contributions and taxes, weighing on all contracts and make hiring and maintaining a full-time employee to be very difficult in a small business” (R7); „Taxes... you do not know what hard, complicated and changeable is taxation... I, for example, do not hire employees permanent, eight hours a day. The translations can do very well at home” (R9). Other difficulties listed, in a descending order of mentioning frequency, were: excessive bureaucracy (i.e., the necessity of neighbors’ approval for opening a business), too ”twisted” legislation, too high rents for rented spaces, difficulties in acquiring equipment (knitting machines, for example) and of adequate space for their operation, difficulty in obtaining the credit from the bank due to their lack of confidence in SMEs, lack of seriousness of raw materials and equipment suppliers etc. As ways to solve these difficulties, entrepreneurs mention: stimulating young people with substantial bonuses in order for them not to emigrate to other countries (R5), appeal to consulting firms for assistance in areas where there were uncertainties - accounting firms, firms for attract funds, for drawn up documents etc. (R1). There were very few examples of good practices in their field listed by interviewed entrepreneurs: entrepreneurs’ ability to be self-taught (“I try as much as possible, to be an autodidact, not leave anything to chance even though at the moment the information is not relevant. Especially in the advertising industry, success is directly proportional to the breadth of your knowledge horizon” – R13), lack of misogyny, fair play (“we do not steal each other's customers” - R2), the use of consulting firms’ services for the bureaucratic problems (R1). Regarding the methods respondents would apply to develop the firm they represent, they differ depending on the specific subsector: the entrepreneur who produces souvenirs would collaborate with elderly folk artists working manual (R1), another entrepreneur of

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an advertising agency would increase the staff salaries to make them loyal and to form a coagulated team of competent employees (R12). Advices that respondents would give to a young entrepreneur in cultural and creative sector in Romania are very diverse and represent lessons that respondents have accumulated in their entrepreneurial experience until now: to learn (because „whatever they do, it’s not enough to be only talented” – R4), especially management and to find a mentor (R7), to be informed (R1) and to be patient in order to be good professionals (R5), to have fair relations with business partners, to avoid compromises and to create a pleasant working environment for employees (R12), to think rationally (based on arguments, not on emotions) and have solutions in advance for all possible obstacles (R8), to have clear objectives (R9), to believe in their business idea (R6) etc. DISCUSSIONS Overall, the statistical data show that Romanians are more inclined towards entrepreneurship than other Europeans: almost half of Romanians (48%) answered they would prefer to be entrepreneurs rather than employees, compared to 37% of the whole EU; the self-employment in Romania registers a slightly higher value (19.4%) than in Poland (17.7%) and Czech Republic (17.1%), countries with whom we share almost the same economic, politic and social background; more than a half (57%) of Romanian young people that expressed interest and orientation towards creative professions said they would open a business if they have a money reserve. Our research presents an overview of some entrepreneurial experience in the cultural-creative sector in Romania, in order to identify the specific factors that stimulated respondents to establish a firm in a cultural-creative industry and, meanwhile, the obstacles faced in trying to develop their firm, the examples of good practices in this sector. The research also aimed to identify respondents' opinions on authorities' involvement in supporting entrepreneurship, on but also respondents’ recommendations addressed to the young entrepreneurs in the cultural-creative sector. The respondents sample was heterogeneous, including SMEs from 13 different subsectors of cultural-creative industries (from art production of souvenirs for tourism to video production, from advertising, marketing, media, public relations, events organizing to knitwear design and production, from furniture design to web design, from graphics to translations etc.), offering thus an objective look at the entire sector. The respondents (mainly in the age segment 30-50 years) had similar aspects in their interview answers. For most of them, the reasons for opening an SME was either an obligation (wages too low at the organization where they were previously employees) either an effect of a personal need for autonomy and creativity or a passion in a specific field. All interviewed entrepreneurs had specific knowledge and know-how in the area in which developed SMEs. The initial capital derived from saved money from the salary they had as employees, from bank credit, from reinvested profits etc.


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Regarding the barriers, most entrepreneurs are discontented by the bureaucracy, the tax policies, and the too changing legislation, but also by the professional and human quality of their employees. Although there is a difference of four years between the Ernst&Young study (2013) and our research, the general picture of weaknesses of the business environment is the same: high fiscalism, bureaucracy and difficult access to financing. Considering that entrepreneurship creates a lot of jobs and the business environment had the same weak points, this may describe a state of not enough concern about the labor market. These no active labor market policies may have an indirect impact on the unsatisfactory quality of the human capital that entrepreneurs claim in our research. Although, they list few examples of good practices in their field, which are related to the tenacity, creativity, and ability to be self-taught of entrepreneurs in the cultural-creative sector. Recommendations for authorities included reducing taxes, bureaucracy and law changes, simplifying the procedures for accessing European funds. The respondents’ recommendations are oriented more to the legislation and taxes, not paying attention to one of the weaknesses mentioned by Ernst&Young study (2013) – communication. It was expected that the contemporary social media have created an efficient professional communication within the entrepreneurial community, resulting in a (so called) good practices handbook. Specific recommendations for the cultural-creative sector are mentioned by the youngest entrepreneur in the sample: „More financing projects, especially on the creative side. And technology, as I seem to go hand in hand. Seriously, we have enormous potential. It's not exploited properly” (R2). REFERENCES

Audretsch, D.B. 2003. Entrepreneurship. A survey of the literature, Enterprise Papers 14, 1-73. Drucker, P.F. 1993. Inovația și sistemul antreprenorial [Innovation and entrepreneurial system],

Bucharest: Encyclopedic Publishing. Ernst &Young. 2013. Antreprenorii vorbesc. Barometrul antreprenoriatului romanesc [Entrepreneurs

speak. Romanian Entrepreneurship Barometer], Bucharest. Available online: www.ey.com/Publication/vwLUAssets/Study_ESO_Barometer_2013_Feb_2014/$FILE/Antreprenorii%20vorbesc_Barometrul%20antreprenoriatului%20romanesc%202013.pdf.

Ernst&Young 2014. Creating growth. Measuring cultural and creative markets in the EU, December. Available online> http://www.ey.com/Publication/vwLUAssets/Measuring_cultural_and_creative_markets_in_the_EU/$FILE/Creating-Growth.pdf.

Ernst&Young. 2015. Cultural times. The first global map of cultural and creative industries, December. Available online> http://www.ey.com/Publication/vwLUAssets/ey-cultural-times-2015/$FILE/ey-cultural-times-2015.pdf.

European Commission. 2003. Green Paper. Entrepreneurship in Europe, Brussels. Available online: http://ec.europa.eu/invest-in-research/pdf/download_en/entrepreneurship_europe.pdf. European Commission. 2010. Green Paper. Unlocking the potential of cultural and creative industries,

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and firm creation as a driver of growth in a global economy, Istanbul. Available online: http://www.oecd.org/cfe/smes/31917899.pdf.

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organic square of entrepreneurship: definition and application to the French case, Journal of Innovation and Entrepreneurship. A Systems View Across Time and Space 3(1).

ANNEX The interview guide for entrepreneurs in cultural-creative industries 1. Please tell me a few words about the company you represent (domain, year of setting up, number of employees) and about you (age, gender, education, occupation before setting up the business and at present, if you are both employee and entrepreneur). 2. How did you decide to start a business on your own? What contributed to the decision to set up a business, which were the factors that led you to take the risk? Please provide details. 3. What was the source of the capital with which you started the business? What were the main stages of the company development since then? 4. Were you hired before you run your own business? (If yes – why you decided to leave employment status, if not - why your own business and not engaged in a firm)?


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5. What did guide you towards this area? Why this and not another area? How well did you know the field (market, competitors)? Tell me, please. 6. What methods have you used to learn more about the business environment? (coaching, training and mentoring activities, educational institutions visited). Give me some details, please. 7. Can you list three strengths and three weaknesses of the business environment in Romania in general and especially in the cultural-creative sector? 8. What can you tell me about the authorities’ involvement (Romania, EU) in supporting entrepreneurship (educational support programs, funding sources)? 9. What support and/or financing measures you recommend (at national and European Union level)? 10. What were the main barriers to your entrepreneurial activity and what kind were they (related to resources - financial, human, equipment; relations with business partners; access to information; the external environment - market, institutions, legislation)? 11. What ways of solving these problems you used? Give me some examples, please. 12. What examples of good practice in your field have you identified? 13. What methods would you apply to develop the company you represent? Detail, please. 14. What advice could you offer to encourage youth entrepreneurship in the cultural and creative sector in Romania?

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ENTREPRENEURIAL ATTITUDES, SCHOOL ENVIRONMENT AND PARENTS’ CIVIC PARTICIPATION Daniela PANICA1 ABSTRACT Creative destruction can only occur when entrepreneurship is politically encouraged by governance, by assuring that individuals and their families will receive the benefits of their work. Young people have been the target of many entrepreneurial policy and businesses, but the surest ways to reach young individuals would be through schools. In other words, school climate can become a potential factor which could affect the development of student’s entrepreneurial potential. Based on previous research on entrepreneurial attitudes, there have been identified five main attitudes towards enterprise: creativity, personal control, achievement, intuition, and leadership. Using the 2011 database “Implicarea civică și politică a tinerilor”, the present paper aims to test whether the presence of entrepreneurial attitudes is associated with the level in which students are encouraged by their teachers to express their own beliefs and opinions in classroom, if the school encourages teamwork, mutual understanding between students, personal autonomy and whether the parents are themselves civically (by doing volunteer work) and politically active (by participating in a political meeting or by contacting authorities) citizens. The results have shown that there is a positive association between entrepreneurial attitudes, school environment, and parents’ civic participation, although these associations are rather weak. KEYWORDS Entrepreneurial attitudes; civic engagement; school environment; creativity.

INTRODUCTION Entrepreneurship and creativity are one of the two most important motors of progress because by encouraging individual creativity, society can benefit from the results of their work and innovations. Towards identifying the factors that can shape an individual into becoming an entrepreneur. Young individuals have been the target of many policies that aim to encourage them to develop their entrepreneurial skills or to become entrepreneurs themselves (Valerio, Parton & Robb, 2014). Although, some courses that can teach people certain skills that may aid them if they will eventually desire to start-up their own business, one of the best and surest ways in which young people could be reached would be through schools. In other words, school climate could become an important factor when it comes to developing the entrepreneurial potential of students. Also, the presence of some entrepreneurial traits within their families might have an impact on their entrepreneurial potential. In other words, if the parents are themselves socially and politically active, children might get a sense of personal control and a predisposition to act and take control, by observing these behaviors from their parents.

1 National University of Political Studies and Public Administration, Faculty of Political Studies, 30A Expoziției Blvd., Sector 1, 012104, Romania, [email protected]


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LITERATURE REVIEW Education and entrepreneurship Acemoglu and Robinson (2012) have shown that societies with a more profound entrepreneurial culture that encourages creativity are also the most economically advanced ones. In other words, the more people decide to start their own business the higher the chance of progress through the discoveries that these individuals can make in order to sustain their business. In other words, entrepreneurship can be beneficial to both society and the individual, but how can it be encouraged? One of the main solutions was to provide education in order to develop certain skills and attitudes that might be valuable when trying to become an entrepreneur. For example, one can provide a course for young adults that can provide them a set of know-hows concerning the necessary steps they must take in order to start their how business. In this case, individuals willing to take part in these courses will already have a predisposition towards entrepreneurship. In other words, courses for young adults, for example, are somewhat efficient in promoting entrepreneurship, but they are tackling only the result of a phenomenon. This is one of the main reasons I consider looking at a school environment and how it can encourage entrepreneurial attitudes, as a better alternative for promoting this activity within society. Recent research on education and entrepreneurship suggests that people who start their own business have a higher level of formal education than people who do not, but despite this, it has been argued that formal education does not generally encourage entrepreneurship (Chamard, 1989; Peterman & Kennedy, 2003), but rather a “take a job” mentality, and suppresses creativity. One of the reasons for this phenomenon could be that some teachers might not have been informed of the importance of creativity and why they should encourage students to think freely (Gralewski & Karwowski 2013). As a result, teachers might reward students’ obedience rather than creativity, but what can happen when they do encourage creativity? Learning Entrepreneurship Attitude towards certain behaviors can dictate how individuals are going to plan their actions (Peterman & Kennedy, 2003). From this perspective, if children are being taught that creativity and personal control, for example, are valuable assets for one’s career, then they will choose a domain where they can use these skills. It is also important to highlight the fact that entrepreneurial skills can be taught not only in school, also from their own parents. Family can play an important role in one’s social development, socialization and social learning theory providing a model that can explain how it can affect both our perception and behavior (Bandura, 1977). As a result, parents can teach their young ones certain norms in order to facilitate their future integration in society, and also, children themselves copy behaviors that they observe from their parents. In other words, if parents exhibit behaviors and attitudes that can encourage some entrepreneurial attitudes, then children will also be socialized with these norms and behaviors. Going back to this paper’s subject, if

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parents exhibit some entrepreneurial attitudes, shown through their activities, then their children should also internalize those attitudes. Measuring Entrepreneurial Potential In previous research, measuring attitudes was one of the main starts up a point in order to develop a mean to determine entrepreneurial potential. Attitude can be defined as a predisposition towards a particular subject (Robinson et al., 1991; Athayde, 2009; McNally et al., 2016; Botsaris & Vamvaka, 2016), it is a much richer concept than “trait” because it can also manifest through beliefs (cognitive), emotions (affective) and actions (behavioral) (Athayde, 2009). In their research, Robinson, Stimpson, Huefner and Hunt (1991) used in their instrument a tripartite model of attitudes, mainly a scale that would measure attitudes towards for dimensions associated with entrepreneurship: achievement in business, self-esteem in business, personal control of business outcomes and innovation in business (Robinson et al., 1991). Although the tripartite scale used by Robinson et al. (1991) can be considered a valid method for measuring entrepreneurial potential, applying it on students (children or teenagers) might raise some problems. Because young people still in school might not have immediate intentions of becoming entrepreneurs (using a scale that would measure achievement in business or personal control of business outcomes, for example, would be inappropriate in this case), researchers have tried to measure latent entrepreneurial potential in order to accommodate the particularity of this social group. Peterman and Kennedy (2003) developed a method to measure pupils’ attitudes to business start-up and found that pupils who had entrepreneurial experience were more motivated in starting a business than those who did not previously have an entrepreneurial experience. Based on the previous attitudinal scales, Athayde (2009) developed a model for measuring the entrepreneurial potential in young people. The author took into consideration five main attitudes towards enterprise, and measured them as follows: creativity (“I believe a good imagination helps you do well at school” or “I enjoy lessons where the teacher tries out different ways of teaching”), personal control (“I believe my successes at school are down to my own determination”, “I prefer to figure things out on my own than rely on a teacher to explain”) , achievement (“I have a lot more energy than most people at school”, “I like to get work finished properly in class”), intuition (“Making mistakes is a good way to learn”, I don’t like making decisions unless I have all the facts”) and leadership (“I believe I can easily carry my friends with me when I have an idea”, I enjoy talking the class round to my point of view”)(Athayde, 2009, p.484). We will use some of these operationalizations in order to measure entrepreneurial potential, mainly personal control, and predisposition to act and take responsibility, achievement, and intuition.


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METHODOLOGY In order to test the association between these variables, I will use the same entrepreneurial attitudes used by Athayde (2009), although a more simplified version: creativity (measured using the question1 “On a scale of 1 to 10, how much do you agree with the following statement: I like solving difficult problems, and I feel fulfilled when I’ve solved them successfully?”, achievement (“I am strong and capable enough to reach my goals”), intuition (“I like taking risk full tasks if there is something to gain from them”), personal control (on a scale of 1 to 10 where 1 means totally agreeing with the statement “Every individual should take responsibility for their own well-being “ and 10 means totally agreeing with the statement “The state should take more responsibility for the well-being of its citizens”, where would you place yourself?). The civic involvement of parents will be measured using the following questions: Civic engagement 1: “Do you remember you parents or any adult that you live with to take part in a demonstration/march?” and: Civic engagement 2: “Do you remember you parents or any adult that you live with to work with an organization in order to solve a problem within your community?” Lastly, the level of encouragement within a classroom of entrepreneurial attitudes will be measured using the following questions: Encouragement 1: “On a scale of 1 to 4 how often do these things happen in your school:

During classes, students are encouraged to have different opinions than their teachers regarding political and social problems?”;

Encouragement 2: “Teachers respect and encourage students to give their own opinions during class”;

Encouragement 3: “Students feel at ease to speak their own opinions during class, even when they know they have a different opinion than the rest of the students”;

Encouragement 4: “Students are encouraged to form their own opinions regarding various subjects.”

Since the aim of this paper is to determine whether the school climate and the level of civic and political engagement of the parents can have an impact on the entrepreneurial attitudes of children, I have developed the following hypotheses: H1: A school environment that encourages entrepreneurial attitudes is positively

associated with the presence of these attitudes in their students. H2: The presence of entrepreneurial attitudes is positively associated with the presence of

entrepreneurial traits within pupils’ family. DATA ANALYSIS Table 1 presents the correlations between all the variables used in the model and the entrepreneurial attitudes. From a first glance, it can be observed that all the associations are quite weak, although the relationship between achievement and the third variable to

1 The database used for this analysis is “Implicarea civică și politică a tinerilor” from 2011, provided by Foundation for an Open Society – Bucharest, Romania. The data was collected from a sample of 2100 persons.

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measure encouragement is the strongest. What is important to mention is that the associations with personal control are mostly negative (with the exception of one variable), meaning that low levels of the variable that measures personal control (because higher levels of personal control are represented by low levels for this variable) are associated with high levels of encouragement. In other words, although these associations are weak, they can offer a little insight on how the independent variables affect the independent ones.

Table 1. Correlation analysis

Creativity Personal Control Intuition Achievement

Encouragement 1 .036** -.008 .032* .015

Encouragement 2 .066** -.029* .042** .063**

Encouragement 3 .054** -.017 .057** .104**

Encouragement 4 .040** -.032** .028* .065**

Civic Engagement 1 .057** -.008 .058** .039** Civic Engagement 2 .036** .002 .047* .034*

P<.001**, p<.05*

Moving on to the regression analysis, which can offer a better understanding of the impact of each variable within the model, I will analyze the impact that encouragement and the level of civic engagement have on each of the entrepreneurial attitudes. Lastly, I have added grades to the first model as a control variable. Starting with achievement, Table 2 shows us that only three variables are statistically significant, more precisely encouragement 3 (“Students feel at ease to speak their own opinions during class, even when they know they have a different opinion than the rest of the students”), civic engagement 1 (“Do you remember you parents or any adult that you live with to take part in a meeting/march?”) and grades which have the strongest impact in the model (16% of the variance in the dependent variable can be accounted to this variable). Looking at the other three models for this variable, encouragement 3 remains the variable with the strongest relationship, after the control variable was removed from the model, and civic engagement 1 also remains statistically significant in all models. Lastly, looking at the adjusted R2, the models overall do not have a strong predictive power, the variables in the models predicting only 3.6% at most from the variance of the dependent variable.

Table 2. Achievement

Model 1 Model 2 Model 3 Model 4

Encouragement 1 -.004 -.003 -.006

Encouragement 2 .010 .023 .027

Encouragement 3 .071** .086** .086**

Encouragement 4 .008 .031* .028

Civic Engagement1 .029* .030* .029* Civic Engagement 2 .022 .025 .026 Grades .161**

Adj. R2 .036 .013 .011 .001

P<.001**, p<.05*


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Moving on to creativity, the situation is similar to achievement, with two minor difference: the associations are not as strong as they were with achievement, but slightly weaker, and that there is a statistically significant relationship with encouragement 2.

Table 3. Creativity


Encouragement 1 .022 0.23 .020

Encouragement 2 .037* .048** .053**

Encouragement 3 .026 .038** .034*

Encouragement 4 -.021 .010 .011

Civic Engagement1 .049** .053** 0.53**

Civic Engagement 2 .026 .027 .027*

Grades .171**

Adj. R2 .037 .010 .006 .004

P<.001**, p<.05*

The third entrepreneurial attitude, intuition has some interesting associations in the model, more precisely, the statistical significance of encouragement 1 and of both of the variables that measure the level of civic engagement. Secondly, it is important to mention that unlike all other entrepreneurial attitudes, in this case, grades have a much lower impact in the model, similar to the other variables.

Table 4. Intuition


Encouragement 1 .032* .029* .048*


Encouragement 3 .039** .046** .047*

Encouragement 4 -.017 -.003 -.002

Civic Engagement1 .048** .046** 0.50**

Civic Engagement 2 .040** .041** .040**

Grades .057**

Adj. R2 .011 .009 .004 .005

P<.001**, p<.05*

Lastly, personal control is the most problematic variable because none of the variables in the model are statistically significant (with the exception of the control variable). Going back to the hypotheses presented in the previous section, both of them have been confirmed by this analysis, although it can be argued that the associations between these variables are very weak.

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Table 5. Personal Control


Encouragement 1 -.011 -.017 -.016

Encouragement 2 -.017 -.025 -.025


Encouragement 4 .007 .001 001

Civic Engagement1 -.011 -.004 .004

Civic Engagement 2 .005 .004 -.009

Grades -.092**

Adj. R2 .008 .001 .001 .001

P<.001**, p<.05*

CONCLUSIONS When it comes to evaluating the relationship between entrepreneurial attitudes, school environment, and the parent’s civic engagement, this analysis has shown that there are very weak relationships between these variables. Taking this into consideration, it is still important to look at the analysis because it can give some insight on which variables have an impact on entrepreneurial attitudes. The analysis suggests that intuition is the attitude that had the strongest influence from the model and personal control was the attitude that had no statistically significant relationships with the variables. In other words, intuition, achievement, and personal control have a higher chance of being influenced by school environment and the level of civic engagement of the parents than personal control. Although the results of this analysis do not reveal a strong association with entrepreneurial attitudes, it can provide a good insight on what could be the determinants that could influence the development of these attitudes. First of all, parent’s civic engagement (especially the demonstration attendance) are variables with a strong impact (at least when compared to the other variables in the model), but my model lacks an in-depth understanding of how and why can this happen. Secondly, there is a positive association between entrepreneurial attitudes and most of the variables that measure encouragement, which could also provide a good start-up point for further research. REFERENCES Acemoglu, D., and Robinson, J.A. 2012. Why nations fail: the origins of power, prosperity, and

poverty. 1. ed., New York: Crown Publ. Athayde, R. 2009. Measuring Enterprise Potential in Young People. Entrepreneurship Theory and

Practice 33(2), 481–500. Bandura, A. 1977. Social Learning Theory. Prentice-Hall Series in Social Learning Theory. Upper Saddle

River: Prentice-Hall. Botsaris, C., and Vamvaka, V. 2016. Attitude Toward Entrepreneurship: Structure, Prediction from

Behavioral Beliefs, and Relation to Entrepreneurial Intention. Journal of the Knowledge Economy 7(2), 433–60.


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Chamard, J. 1989. Public Education: Its Effect on Entrepreneurial Characteristics. Journal of Small Business & Entrepreneurship 6(2), 23–29.

Gralewski, J., and Karwowski, M. 2013. Polite Girls and Creative Boys? Students’ Gender Moderates Accuracy of Teachers’ Ratings of Creativity. Journal of Creative Behavior 47(4), 290–304.

McNally, J.J., et al. 2016. Toward Rigor and Parsimony: A Primary Validation of Kolvereid’s (1996) Entrepreneurial Attitudes Scales. Entrepreneurship & Regional Development 28 (5-6), 358–79.

Peterman, N.E., and Kennedy, J. 2003. Enterprise Education: Influencing Students’ Perceptions of Entrepreneurship. Entrepreneurship Theory and Practice 28 (2), 129–44.

Robinson, P.B., Stimpson, D.V., Huefner, J.C. and Hunt, H.K. 1991. An Attitude Approach to the Prediction of Entrepreneurship. Entrepreneurship Theory and Practice 15(4), 13 – 30.

Valerio, A., Parton, B., and Robb, A. 2014. Entrepreneurship Education and Training Programs around the World: Dimensions for Success. The World Bank.

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THE YOUNG ENTREPRENEUR: BETWEEN RATIONAL INDIVIDUALISM AND HOLISM IN THE DECISION-MAKING PROCESS Stefan STĂNCIUGELU 1

Dumitru IACOB2 ABSTRACT The study we propose in the methodological and theoretical formula of a sociological investigation reveals a certain predisposition of the group of students questioned in February 2016 towards a holistic type of logic employed in the problem-solving process. The study was conducted on a group of 40 students (there are 36-37 recorded answers for the selected questions) through online questionnaires, the questions implying two variables: the rational-individualist type of option and the holistic type of option (intuition, faith, the appeal to Luck, and Chance). The results gathered show that a percentage of over 2/3 of the questioned subjects prefer a holistic approach rather than the rational-individualist approach in their decision making. The research question implied in our study is whether the future entrepreneurs favor such a predisposition towards the holistic type of logic in their decisions, rather than the critical thinking revolving around the Cartesian method of doubt. Our study is ongoing, being redefined from a comparative perspective in many regards – we herein present the outcomes of an exploratory study conducted on a group of MA students in communication. For the moment we may say that within the group of students who answered our questions the `non-logical thinking` is dominant in comparison with the `logical-rational` way of deciding. KEYWORDS Web-generation; ideal type; entrepreneurship; decision-making.

INTRODUCTION The sociological investigation we propose below is based on the idea of a distinction between the approaches and decisions implied by ‘a holistic type of logic’ and the approaches/decisions related to the perspective of ‘the individualist-rationalist type of logic’. In other words, in our decisions we are often inclined to favor either the general-holistic approaches that are based on ‘what we feel’, ‘what it seems’, or ‘what our intuition is’ and that engage the well-known ‘emotional brain’ (Davidson & Begley, 2013, pp/73-78), or the approaches or decisions involving ‘rational calculus’, ‘rational approaches’, economic individualist approaches coordinated by ‘the rational center’ in our brains (Damasio, 2016, pp.143-145, 190-193; Damasio, 2004).

1 National University of Political Studies and Public Administration, 30A Expoziției Blvd., Sector 1, 012104, Bucharest, Romania, [email protected]. 2 National University of Political Studies and Public Administration, 30A Expoziției Blvd., Sector 1, 012104, Bucharest, Romania, [email protected].


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The success of our approaches and decisions underlain by one or the other of the two logics often depends on many factors, thus we can never have the certainty of operating in ONLY one of these two decision-making paradigms. This is however less important to the content of our research. The study we propose is an exploratory research whereby the questioned students were faced with decisions favoring either the individualist-rational logic, or the holistic-intuitive logic. Assuming the young students targeted in our research were to become future decision makers – managers in various fields, the question is: Can we discuss about a trend among the young generation – ‘The web-generation’ in terms of favoring one way of thinking or another? Our study bears obvious limitations in terms of the completeness of the answer to this question, related to the number of persons being questioned, the extent of the questionnaire, the type of questions and their verification through other questions within the same questionnaire – and related to the already generally and widely-known methodological concerns specific to studies conducted on representative samples. We thus do not assume we have a definitive answer to the question regarding the tendency or trend, the predisposition manifested at the level of ‘the Web generation’ in terms of one or the other of the approach logics in the managerial decision. Once again, this is an exploratory research whereby we outline a potential research topic – an approach in the methodology bearing complex material, methodological and financial resources, related to the predisposition of today’s generation of students, formed in another logic than the one of our generation – we who conducted the study. Without assuming demonstrations or other studies on the concept of ‘Web-generation’, we however assume that today’s generation of youngsters being raised and formed within the settings of a digital culture and a ‘web addiction’ stands as an obvious truth. Does this addiction bear effects in terms of configuring a certain logic of making decisions and approaching problems in a managerial setting? This is not our research question. We once again mention that our study provides an answer to a far more specific question regarding a group of students in humanities – in the field of communication – who are not representative to an entire generation, not because it was impossible to find these characteristics of managers as dominant among ‘the Web-generation’, but because our targeted group and methodology do not allow for a generalization at this level. What we can affirm is that a group of several tens of students answered a brief questionnaire whereby questions relevant to one or the other of the two ways of managerial approach/decision discussed herein – holistic or rational-individualistic – were addressed. METHODOLOGY The purpose of the study. Our study derives from a specific aim of the present Conference: ”to bring forward some new insights and academic models in the proposed areas of research”. According to this perspective, our study proposes an innovative approach of the entrepreneurial decision-making process by means of a sociological study on a group of Romanian students.

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The content of the analysis. Our analysis starts from the logic of contemporary entrepreneurship (that involves a rich series of unknown or low profile variables due to a more and more complex and differentiated reality) which is directly connected to the empirical sociological research that is based on a questionnaire applied within a group of MA students. The theoretical premises and the research question. Our present findings suggest that the questioned students favor rather a more and more holistic logic and their own intuition instead of trusting their rational calculation and the individualistic logic in solving problems. Our general research question is related to what we may call a ”Web-generation” and to the holistic/individualistic way of decision making, taking into consideration that a ”pure” way of thinking/deciding of one kind or the other is impossible to find in real life. As D. Dumitrescu notices while analyzing the significance of the “ideal type” concept in Weber’s work, we should not overlap the “Ideal type” to “What should be” or to “What is specific to a certain reality”. The ideal-type is a logical construction, whose particular meaning in our research is “Digi generation”, next to the two “pure” (not real, just as two concepts) ways of deciding or approaching a specific reality – “the holistic logic” and “the rational-individualistic logic”” (Dumitrescu D., 2000, pp.397-413). Within this theoretical background, our general research question asks about this correlation between the two “pure” types of decision making and the “Digi-generation” represented in our research by a group of 36-40 MA students in social communication as potential future entrepreneurs: Is the Entrepreneur of the Digi-Generation predisposed to a specific type of logic in the decision making? RESEARCH RESULTS Three of the questions in our questionnaire refer to this aspect of decision making at the level of the targeted group, being thus related to the research question regarding the rational-individualistic or holistic type of managerial decision. Below are the questions and the results obtained through their application at the level of the targeted group of students in a separate section, while in the following section we attempt to provide meaning – interpretations of the gathered data. (i) Presentation of the research data Q.1. Be confident instead of doubting about things and yourself, because the doubt is, in fact, an energy, but a negative one. I fully agree - 44,4% I agree - 33,3% I disagree - 22,2% I fully disagree – 0%


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Figure 1. Answers to Q1

Q.2. Be open to the Unexpected/Unknown, because even when you do not know which is the result of Chance, things always happen for a reason. I fully agree – 37,8% I agree – 54,1% I disagree – 8,1% I fully disagree – 0%


Q.3. When you solve a complicated problem or have to make a difficult decision, follow your intuition since it gives you a sense of harmony and wellness, rather than getting lost in rational calculations that make you doubt any of the alternatives you have. I fully agree – 23,7% I agree – 44,7% I disagree – 31,6% I fully disagree – 0%

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(ii) Interpretation of the research data Q.1. Be confident instead of doubting about things and yourself, because the doubt is, in fact, an energy, but a negative one. The first of the analyzed questions (Figure 1) refers to one of the fundamental characteristics of learning which is cultivated and emphasized in the Romanian educational system, especially at graduate and postgraduate level. We thus refer to the famous Cartesian method of doubt whereby we can acquire answers to our questions, on which we fundament our research as well as any and all endeavors of finding the truth: Dubito ergo cogito, cogito ergo sum. In the answers to this question which correlates the opting for believing in oneself – in one’s intuition, in the ability to find the truth and to know in general on the one hand and the method of doubt on the other hand, there seems to be a social predisposition towards a direction essentially different from the one in the spirit of whom we are educated at graduate level. The decision maker – the potential future entrepreneur – more likely seems to trust the belief in his/her ability to solve problems rather than the method of doubt towards and whereby we guide our knowledge. The content of the question is all the more interesting as it also bears an argument which almost absurd in terms of logic and the founding of knowledge, according to which we ought to set aside the doubts on the nature of things or one’s own ability for knowledge: DOUBT ENGENDERS A … NEGATIVE ENERGY. Despite all the absurdity in the content of the question, we noticed that the options appealing to setting aside any and all doubt and assuming a decision based on the belief in oneself and in the ability to solve problems were preferred by over 2/3 of the questioned students, 77.7% of the answers pertaining to the categories ‘I fully agree’ and ‘I agree’. Only 22.2% of the students reject this type of belief in relation to knowledge and – as it results from immediate inference – often appeal to doubt and question things in their problem-solving options and decisions rather than appealing to belief and to the holistic approach founded on belief, on faith rather than on methodical doubt.


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Q.2. Be open to the Unexpected/Unknown, because even when you do not know which is the result of Chance, things always happen for a reason. The second question selected from our study (Figure 2) refers to another dimension of the relation Holism-Rationalism in the options of the targeted subjects. We thus notice that 91.9% of the subjects implied they agreed to the existence of a Reason underlying the things and world around us. The first part of the statement is plausibly and reasonably associated to critical thinking and to keeping an open mind to the unexpected evolution of the phenomena, processes, events we undergo or witness. Its argument is however ruinous to all critical thinking – it actually cancels it out: all happens due to Chance and to a Reason beyond what we see, governing the social and physical universe of our decisions. The fact that 92% prefer to project the logic of their own social world onto a hidden Reason or to Chance/Luck once again implies a predisposition to operating in the non-critical, holistic paradigm of the majority of the questioned subjects. The fact that only 8.1% of the subjects positioned themselves in the ‘I disagree’ category seems to suggest that only under 10% regard themselves as the decision makers and authors of their own projects and destinies. Q.3. When you solve a complicated problem or have to make a difficult decision, follow your intuition since it gives you a sense of harmony and wellness, rather than getting lost in rational calculations that make you doubt any of the alternatives you have. The third question is concurrent, in terms of the answers gathered, with the idea of holistic thinking dominant at the level of the questioned group. This question implies an already clear idea about a decision regarding a specific problem, in relation to which the content of the question presents as alternatives (a) the intuition, with the argument of harmony and the positive outcomes to one’s feel-good state and (b) rational calculus, with the repetition of the argument from the previous question – Logical-rational decisions create discomfort in one’s decision making. The individualistic-rationalistic paradigm is once again very poorly represented in the subjects’ answers – over 70% opted for intuition rather than for rational calculation. CONCLUSIONS The three questions selected from our study point out to a reality able to generate serious concerns regarding the outcomes of our educational strategies – especially the ones whereby students are aimed to acquire a way of thinking focused on – if not dominated by – critical thinking in their options and in the general process of knowledge. In particular terms of this research, our findings seem to tell us that the number of students who are guiding their research/opinion/knowledge behavior in general by the Cartesian methodological doubt is very small. It would be interesting to see the answers to these same questions when applying them to a group of students in the field of management. At least for the time being, the communicators of the managers to-come suggest a rejection of critical thinking in their decisions and options. Another study conducted on a group of pupils showed similar

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results – that is a predisposition towards holistic thinking – so the problem (if there is one) is not specific to or doesn’t occur only in the graduate education system. It would be implausible to assume that when pupils reached university level they had been adepts of critical thinking and that they changed that paradigm for a holistic one during and as a result of their university education. The only conclusion emerging from this study – with its limitations outlined in the above – would be that a group of students in communication sciences prefer or are rather predisposed to a holistic approach in their options and decisions. Further emphasizing the idea, we may state that these same youngsters are poorly predisposed to – as only a small percentage of them prefer – the rational-individualistic paradigm in their problem solving and personal decisions. At this point we are unable to deem this group as representative to an entire generation or the educational system, or to discuss about the extent to which technology and youngster’s addiction to computers and web networking constitute potential factors facilitating the holistic type of thinking. These observations can at the very most stand as future questions – or sources – for future research questions. Our research is exploratory and its immediate effect and plausible conclusion is the fact that the research question reveals a real matter to be researched, which should be resumed in other contexts and at other levels. For instance, a comparative type of logic on the most various of criteria could still in/validate it: Do students in the field of management have the same predisposition to the global approach (which implies intuition, religious faith or not)? What about the students in other cultures – European or non-European universities, do they have a similar predisposition towards the holistic type of logic in their problem solving? All these questions provide all the more reasons for the study to be relaunched (i) targeting students from other fields and (ii) from other cultures as well. REFERENCES Damasio, A. 2004. Descartes’ Error, Bucharest: Humanitas Publishing. Damasio, A. 2016. Self Comes to Mind: Constructing the Conscious Brain, Bucharest: Humanitas

Publishing. Damasio, A. 2010. Looking for Spinoza, Bucharest: Humanitas Publishing. Davidson, R., and Begley, S. 2013. The Brain and Emotional Intelligence, Bucharest: Litera Publishing. Dumitrescu, D. 2000. The Meaning and Characteristics of the Ideal Type – Fundament of the

Weberian Methodology. The Romanian Journal of Sociology, new series, year XI, 5–6, 397–413.


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TOLERANCE FOR AMBIGUITY AND SELF-EFFICACY - PREDICTORS FOR ENTREPRENEURIAL ORIENTATION? Dan Florin STANESCU1 Virgil GHEORGHE2 Marius Constantin ROMASCANU3 ABSTRACT Entrepreneurial orientation has become one of the prerequisites for organizational success, different authors pointing out that organizations having a high level of EO tends to be innovative and encourages creative initiatives in new products and service development. The study of entrepreneurship usually analyses different variables that explain its appearances, such as personal characteristics or environmental variables. Managers with a high tolerance for ambiguity are more entrepreneurial in their actions, and dealing with uncertainty, taking risks, and embracing changes are part of entrepreneurial jobs. Similarly, previous empirical entrepreneurial research showed self-efficacy as an important factor, playing an essential role in determining an individual's confidence, the level of effort, and perseverance, as people need to believe in their capacity to succeed in starting a new business before they do so. Current research aims at investigating the relationships between self-efficacy, tolerance for ambiguity and entrepreneurial orientation, defined here as the propensity of an organization to create, change, and improve. Three scales were used in the research: General Self-Efficacy Scale, Tolerance for ambiguity, and Entrepreneurial Orientation Scale. The questionnaires were administered to a convenience sample of 56 participants. Results showed significant correlations between self-efficacy and entrepreneurial orientations (r=-.286, p<0.05) and between tolerance for ambiguity and entrepreneurial orientations (r=-,278, p<0.05). KEYWORDS Tolerance for ambiguity; self-efficacy; entrepreneurial orientation.

INTRODUCTION The increasing importance of entrepreneurial activities cannot be overlooked, as it is one of the most reliable tools for economic growth and wealth creation of any country. Most of the previous attempts to distinguish between entrepreneurs and managers and even general population have discovered no significant differentiating personality characteristics. Nevertheless, some studies managed to identify few characteristics of the entrepreneur such as achievement orientation and internal locus of control (Brockhaus & Horwitz, 1986). In 1987, Begley and Boyd stated that in studies of entrepreneurial characteristics, some attributes recur with regularity: need for achievement, internal locus

1 National University of Political Studies and Public Administration, Faculty of Communication and Public Relations, 30A Expoziției Blvd., sector 1, Bucharest, 012104, Romania, [email protected]. 2 National University of Political Studies and Public Administration, Faculty of Communication and Public Relations, 30A Expoziției Blvd., sector 1, Bucharest, 012104, Romania. 3 National University of Political Studies and Public Administration, Faculty of Communication and Public Relations, 30A Expoziției Blvd., sector 1, Bucharest, 012104, Romania.

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of control, moderate propensity for risk-taking, tolerance for ambiguity and Type A behavior (Begley & Boyd, 1987), but, the overall evidence is that entrepreneurs are moderate risk takers and do not significantly differ from managers or even the general population (Low & MacMillan, 1988). Although previous studies concluded that there was no consistent relationship between personality and entrepreneurship (Brockhaus & Horwitz, 1986; Gartner, 1988), several more recent meta-analyses have shown that entrepreneurs differ from other groups in terms of personality traits. For example, Stewart and Roth (2001, 2004) found entrepreneurs to be significantly higher in risk propensity than managers, and Collins, Hanges, and Locke (2004) and Stewart and Roth (2007) found entrepreneurs to be significantly higher in achievement motivation. Furthermore, in previous research studies, achievement need, tolerance for ambiguity, risk taking and locus of control were identified as correlates of being an entrepreneur (Begley & Boyd, 1987; Bonnett & Furnham, 1991). Current research aim at studying the relationship between specific psychological traits such as self-efficacy and tolerance for ambiguity and entrepreneurial orientation, because entrepreneurs with certain psychological traits may have a tendency to exhibit a certain degree of entrepreneurial orientation and showing this tendency may provide benefits to the organization. LITERATURE REVIEW During the last decades, a large stream of research has examined the concept of entrepreneurial orientation, this concept receiving a substantial amount of theoretical and empirical attention (Covin, Greene, & Slevin, 2006). According to with different authors (Lumpkin & Dess, 1996; Wiklund & Shepherd, 2003), entrepreneurial orientation refers to the strategy making processes that provide organizations with a basis for different entrepreneurial decisions and actions. Entrepreneurial orientation also incorporates processes, practices and decision-making styles at the organizational level (Lumpkin & Dess, 1996). Specifically, entrepreneurial orientation refers to the entrepreneur’s disposition to autonomy, encourages experimentation, takes the risk, takes initiatives, and aggressively competes within its market (Covin & Slevin, 1989; Lumpkin & Dess, 1996; Morris & Paul, 1987). A recurring question asked by those seeking to understand the essential nature of EO is whether entrepreneurial orientation represents a dispositional or a behavioral construct (Voss, Voss & Moorman, 2005, p.1134). For instance, Voss and colleagues (2005) consider entrepreneurial orientation as a firm-level disposition to engage in behaviors that lead to change in the organization or marketplace and, by contrast, other researchers (Pearce, Fritz & Davis, 2010, p.219) conceptualize entrepreneurial orientation as a set of behaviors that have the qualities of innovativeness, proactiveness, competitive aggressiveness, risk taking, and autonomy. Based on Miller’s (1983) conceptualization, three dimensions of entrepreneurial orientation have been consistently identified in the literature: innovativeness, risk taking,


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and proactiveness. Innovativeness refers to a willingness to support creativity and experimentation in introducing new products/services, and novelty, technological leadership, and R&D in developing new processes. Risk-taking means a tendency to take bold actions such as venturing into unknown new markets, committing a large portion of resources to ventures with uncertain outcomes, and/or borrowing heavily. Proactiveness is an opportunity-seeking, forward-looking perspective involving introducing new products or services ahead of the competition and acting in anticipation of future demand to create change and shape the environment. Proactiveness refers to a firm’s response to marketplace opportunities. A strong proactive tendency gives a firm the ability to anticipate change or needs in the marketplace and be among the first to act on them (Lumpkin & Dess, 2001). Previous research suggests that tolerance for ambiguity is critical to performance in a number of business domains, from decision making (Dollinger, Saxton & Golden, 1995) to entrepreneurial behavior (Schere, 1982), ability to cope with change (Judge, Thoresen, Pucik & Wellbourne, 1999). A concise definition of tolerance for ambiguity as “the tendency to perceive ambiguous situations as desirable” (Budner, 1962, p.29) is clearly related to individual differences. Considering this approach as a limitation, McLain (1993) focused his attention on the contextual meaning of ambiguity, defining the construct as “a range, from rejection to attraction, of reactions to stimuli perceived as unfamiliar, complex, dynamically uncertain, or subject to multiple conflicting interpretations” (p. 184). In this respect, Kirton (1981) argued that the construct has become overextended, and may differ conceptually across contextual domains. Durrheim and Foster (Durrheim, 1998; Durrheim & Foster, 1997) went further to assert that tolerance for ambiguity is not a stable individual difference, but entirely context-dependent. On the other hand, there is strong evidence that individuals with a greater level of tolerance for ambiguity are more likely to effectively manage the stress of uncertain environments and to be more adaptive and receptive to change (Judge, Pucik, Thoresen & Welbourne, 1999). Dollinger (1983) found that tolerance for ambiguity trait is positively related to entrepreneurial activity. Similarly, Gupta and Govindarajan (1984) research revealed that greater willingness to take the risk, and greater tolerance for ambiguity, contribute to the effectiveness of strategic business units. Moreover, Carland and colleagues (1989) reported that people who best tolerate ambiguity are also the most innovative. At the same time, a substantial body of evidence supports the observation that the self-efficacy of entrepreneurs is an important construct for understanding entrepreneurial success (Boyd & Vozikis, 1994; Markman et al., 2002; Krueger, 2003; Segal et al., 2005). There are strong arguments why the self-efficacy construct is appropriate for the study of entrepreneurship in general and entrepreneurial orientation in particular - it includes an assessment of confident beliefs an individual has about internal and external constraints and possibilities, and it is close to the action and action intentionality (Boyd & Vozikis, 1994). Previous studies have found self-efficacy to be a good predictor of start-up intentions (Krueger et al., 2000), a key determinant of new venture growth and personal success (Markman et al., 2002). For example, Shane and colleagues (2003, p.267) have argued that

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an entrepreneur who is high in self-efficacy is likely to “exert more effort for a greater length of time, persist through setbacks, and develop better plans and strategies for the task.” An individual with high self-efficacy will exert more effort for a greater length of time, persist through setbacks, set and accept higher goals, and develop better plans and strategies for the task. These particular attributes are considered by McShane and Glinow (2008) as important to the entrepreneurial process because often business situations are ambiguous; hence effort, persistence, and planning are important (McShane & Glinow, 2008). Rauch and Frese meta-analysis (2007), showed that self-efficacy represents an important factor in increasing the likelihood of business start-up activity and that individuals with higher entrepreneurial self-efficacy have higher entrepreneurial intentions and are consequently more likely to believe they also have an actionable idea. In one of his more recent writings, Bandura has defined self-efficacy as a person’s belief in their “capability to produce given attainments” (Bandura, 2006) rather than to execute the behavior required to produce outcomes. Following this approach, individuals with a low sense of self-efficacy will be more likely to possess negative thoughts and think of task's demands as threatening not as challenging and therefore set low objectives for themselves (Yusuf, 2011). METHODOLOGY Starting from those previous empirical findings, the current study aims at investigating the relations between the tolerance for ambiguity, self-efficacy and the entrepreneurial orientation. A cross-sectional research design was used to examine the relationships between the selected variables. Specifically, we propose the following hypotheses: Hy1. The self-efficacy is positively related to entrepreneurial orientation; Hy2. The tolerance for ambiguity is positively related to entrepreneurial orientation. In order to reach the proposed objective and to test the above hypotheses, three standardized instruments were used: Tolerance for Ambiguity Scale (Judge, Pucik, Thoresen & Welbourne, 1999); General Self-Efficacy Scale (Schwarzer & Jerusalem, 1995), and Entrepreneurial Orientation Scale (Covin & Slevin, 1989). The questionnaires were administered to a convenience sample of 56 participants (24 males and 32 females) aged between 21 and 41 (M=23,87, SD=3,34). Tolerance for ambiguity scale (TFA) is an 18-item scale and all responses are based on a five-point scale, from 1 (Strongly Disagree) to 5 (Strongly Agree). A higher score reflects a higher intolerance for ambiguity. Entrepreneurial orientation (EO) was measured using a questionnaire developed by Miller, Covin, and Slevin (1989) containing 8 items measured using a five-point Likert scale. Based on Miller’s (1983) conceptualization, three dimensions of EO have been identified and used consistently in the literature and are scored as individual sub-scales: innovativeness, risk


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taking and proactiveness (Rauch, Wiklund, Lumpkin & Frese, 2009). The scale had an alpha of .63 to .77 (Foo & Lee, 2005). New General Self-Efficacy Scale (NGSES; Schwarzer & Jerusalem, 1995), was used to collect data on the feeling of self-efficacy. The instrument contains 10 items designed to measure the participants perceived level of self-efficacy. Perceived self-efficacy facilitates goal setting, effort investment, persistence in face of barriers and recovery from setbacks. It can be regarded as a positive resistance resource factor. Ten items are designed to tap this construct. Each item refers to successful coping and implies an internal stable attribution of success. The response categories for each item ranged from “Never (1)” to “Always (4)”. The numerical values of 1 to 4 are assigned to each response. The higher the score, the higher the self-efficacy while the lower the score the lower the self-efficacy. Cronbach’s alphas ranged from .76 to .90, with the majority in the high .80s (Schwarzer & Jerusalem, 1995). RESULTS AND DISCUSSION Table 1 presents the descriptive statistics (means and standard deviations) of the selected variables. Also, the analysis of Skewness and Kurtosis showed that data distribution is normal.

Table 1. Descriptive statistics: tolerance for ambiguity,

general self -efficacy and entrepreneurial orientation scale (N=56)

Mean Std. Deviation

Statistic Statistic

General self-efficacy 28.86 3.82 Tolerance for ambiguity 53.48 6.88 Entrepreneurial orientation 37.44 10.48 Risk taking 12.07 4.43 Proactiveness 12.71 3.95 Innovativeness 12.61 3.97

The first hypothesis (Hy1) predicted that the self-efficacy would be positively related to entrepreneurial orientation. Data analysis showed a non-significant correlation, no relation being observed between self-efficacy and entrepreneurial orientation (r=.048, p>.05), contrary to the studies that have found out that general self-efficacy induces a positive emotional drive, persistence, and resilience in the face of difficulties, leading entrepreneurs to reach designated performance goals (Bartol et al., 2001; Judge et al., 2007; Markman et al. 2002). Because entrepreneurial activity includes a large number of potential tasks and associated skills, self-efficacy alone is not enough in explaining it, and may also be biased by entrepreneurial knowledge levels (Føleide, 2011), experienced entrepreneurs being susceptible to inflate their self-efficacy scores because of their past or present success. The second hypothesis (Hy2), predicted that the tolerance for ambiguity would be negatively related to entrepreneurial orientation. The total score of entrepreneurial

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orientation indeed showed negative significant correlation (Table 2) with tolerance for ambiguity (r=-.278, p<.05). Those results are mirrored by previous research that found that being innovative, risk-taking, and proactive requires a certain level of tolerance for ambiguity, (Entrialgo et al., 2000; Lumpkin & Erdogan, 2004). Entrepreneurs with a higher tolerance for ambiguity are found to own the most innovative and entrepreneurial firms (Entrialgo et al., 2000; Rigotti et al., 2003). In the same regard, the previous research identified tolerance for ambiguity as one of the most important variables in explaining managerial coping with organizational change (Judge et al., 1999).

Table 2. Correlations between tolerance for ambiguity and entrepreneurial orientation Entrepreneurial orientation Tolerance for ambiguity Pearson Correlation -.278*

Sig. (2-tailed) .038 N 56

Moving one step further, the results showed significant negative correlations only in case of proactiveness subscale of entrepreneurial orientation (r=-.286, p<0.05).

Table 3. Correlations between tolerance for ambiguity and entrepreneurial orientation subscales

Proactiveness Risk taking Innovation Tolerance for ambiguity

Pearson Correlation -.286* -.237 -.194 Sig. (2-tailed) .033 .078 .151 N 56 56 56

The results are consistent with the findings of Venkatraman (1989) who suggests that proactiveness refers to processes aimed at anticipating and acting on future needs by seeking new opportunities and introducing new products ahead of the competition. Thus, proactiveness requires a desire and willingness to think and initiate actions to answer future situations and threats. Tolerance for ambiguity is critical to proactiveness because the later suggests a forward-looking perspective into an unknown future. CONCLUSIONS The large majority of the past research focused on the relationship between entrepreneurship and psychological traits have found contradictory results in distinguishing entrepreneurs from the general population (Begley & Boyd, 1987; Bonnett & Furnham, 1991). In addition to those studies, this research considered the dimension of an entrepreneurial orientation as the dependent variable and psychological traits such as general self-efficacy and tolerance for ambiguity as predictors. Consistent with previous research (Cox, Mueller & Moss, 2002; Ogunleye & Osagu, 2014), our findings showed that self-efficacy did not significantly influence entrepreneurial orientation, in line with the criticisms advanced by Gartner (1988), Low and MacMillan (1988), Aldrich and Zimmer (1986), who stated that those psychological traits – including self-efficacy - are inadequate in explaining entrepreneurial behavior.


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The present study is not without limitation. First, the design is cross-sectional and we used self-reporting questionnaires. Second, a larger sample size might also provide a higher degree of statistical significance. In this respect, future research should also be designed to overcome some of the limitations mentioned. One important issue is that self-efficacy was assessed applying the general self-efficacy scale commonly used in psychology research (Schwarzer & Jerusalem, 1995). To address this issue, additional research is needed to assess self-efficacy using a more specific entrepreneurial self-efficacy scale (Chen et al., 1998). One approach would be to also to consider different components of the entrepreneurial orientation such as those suggested by Ibarra (1993) who stated that innovativeness consists of both administrative and technological innovation (Ibarra, 1993). Furthermore, the utilization of mixed methods and of longitudinal approach, linking traits variables to entrepreneurial intentions, and later on to entrepreneurial orientation might help us to understand more about the entrepreneurial profile. Proactiveness in competition, innovativeness, and willingness to take risks are increasingly seen as crucial activities in the development of all types of business (Quince & Whittaker, 2003) and plays an important role in a dynamic modern economy. Therefore, developing a better understanding of variables that influence or may predict entrepreneurial orientation and that facilitate success in an entrepreneurial role is an important undertaking. The main practical implication of our study is that the findings might be useful in selection of potential entrepreneurs. Increased awareness of the entrepreneurial profile might stimulate screening the entrepreneurs with the potential to create high-performing firms, knowing that starting a new business is a complex and expensive endeavor, which still has a very low success rate at this moment. REFERENCES Aldrich, H.E., and Zimmer, C. 1986. Entrepreneurship through social networks. In D.L. Sexton and

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MATURITY OF THE RISK MANAGEMENT APPROACH IN THE ROMANIAN ENTREPRENEURIAL BEHAVIOR Sergiu Octavian STAN1 ABSTRACT One of the most important issues for managers in our days is to get good results for their companies, in the condition of high competition in the market but also taking account of the frequent changes in the economic behavior. Even we talk about the changes related to the permanent increasing of the quality of products and services, or about the sophistication of the client needs, or considering the new marketing strategies of the competitors, the common preoccupation of the entrepreneurs is to manage change in an effective way. This type of management is focused on getting effective and efficient decisions based on predictable situations and scenarios in the business environment. Unfortunately, the predictable situations for management decision are very rare in the actual global environment for companies. The mainstream of the top decision management is focused in our days to predict the unpredictable. That means in technical terms to have a good risk management philosophy but also a mature risk management approach in the business philosophy. The aims of this paper are to emphasize the main challenges and issues for the entrepreneurs in the actual global market, both to the European and to the national level, but also, to underline the role of risk management approach in improving managerial decision. The case study is focused on determining the perception about the main issues related to risk and the maturity of risk management, based on a qualitative approach, using semi – structured interviews, held with 10 managers and entrepreneurs in the field of Romanian creative industry. KEYWORDS Risk management; entrepreneurship; maturity.

INTRODUCTION The recent history facts proof that the economic progress could be obtained in different ways. The first way, unfortunately, used in the last one hundred years, was related to the development based only on getting profit, without conscience about the collateral problems generated to the environment (in general) and business environment (in particular). This kind of business approach generated in the last years major crises in the environmental, economic and social field. Severe pollution, global heating problems, economic crises, the bankruptcy of companies, high unemployment represented one of the most visible consequences of this type of policy. The second way of getting economic progress (used especially in the last 20 years) is based on a philosophy of sustainable economy, which means sustainable growth and friendly policies for environment, society, and companies. Both tendencies are present in the actual global economy. There are still a lot of big companies which are not very sensible to be part of the new economic

1 Doctorate School of the Bucharest University of Economic Studies, Piata Romana 1, Sector 1, Bucharest, Romania, [email protected].


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philosophy of sustainable development environment, but international norms and regulations forced them to be part of this concept. One of the most important and representative segments for developing a sustainable economy is the entrepreneurial environment. The role and the importance of the entrepreneurial environment are emphasized and recognized by numerous international bodies but also especially by the European Commission, which developed a special strategy entitled ENTREPRENEURSHIP 2020, included into the frame of Horizon 2020 (COM, 2012, 4 -6). The report of the Commission underlines the idea that until 2020 more than 4 million new jobs will be generated by the entrepreneurs by the SME’s. But also it is important to emphasize the idea that the entrepreneurs face off today with one of the most important challenges for their business. Relative recent statistics proofs that at 2012 level, less than 37% of the EU citizens have the intention to open a new business, in comparison with a percent of 45% in the period before the last financial crises. More of this, the statistics underlines also the idea that at EU level about 50% of the new businesses become insolvent in the next 5 years from the initiation (COM, 2012, 4-6). That situation means that there are fewer people at EU level capable and available to take the risk of launching a new business in the above-mentioned circumstances. In this context, the EU Commission encourage strongly by specific transversal policies, the obtaining of new competencies and facilities for the new generation of entrepreneurs. LITERATURE REVIEW For the encouraging and sustain the developing of the entrepreneurial behavior, the European Commission support, as being very important, the pillar entrepreneurial education. The Commission encouraged strongly the investment that will be made into the field of entrepreneurial education as a very important asset. Important authors in the field of business entrepreneurship, as Ahmad and Seymour (2008), emphasize that is a strong correlation between the economic performance of a company and the quality of the entrepreneurial education of the managers as a premise for good and effective decisions (Ahmad & Seymore, 2008, pp.7 -10). Their thesis is based on a concept of learning step by step how to be a good entrepreneur of manager because the success in business is due to competencies gained not only by the chance of doing business. One of the most envisaged groups for entrepreneurial education is the group of young EU citizens, with the age until 15 – 24 years, which don’t have work experience, but which want to get competencies for launching their own business (OECD, 2013, pp.116 -117). The young generation of entrepreneurs represents for EU Commission a very important resource for success and prosperity for whole Europe.

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Taking into consideration also the relationships EU - national, it is important to tackling the recommendations of the Commission for State Members regarding the imperious necessity for developing articulated strategies at national and regional level, in the field of entrepreneurial education, especially for young entrepreneurs, but with predictable impact on national economies (ECOTEC, 2010, pp.38 -41). This type of indicators could be different from one country to other, but also is necessary to have a common base for the evaluation of the impact of results of the EU level. In their study Henry and Chatzichristou (2014) tackling some specific indicators for monitoring entrepreneurship education (as there are presented in the EU policies): Policy Infrastructure (Inputs), Activity, Outcome, and Impacts (Henry & Chatzichristou, 2014, p.17). Of course, this type of approach is a general one but has the great merit to generate a common base for assessment of national policies. Analyzing the EU documents, it is important to tackling that already there are countries as Spain, Slovenia, Slovakia and Iceland, which already had included in their strategies, policies for entrepreneurial education with certain impact indicators for evaluation (European Commission, 2012, pp.9 -27). In a successful strategy for implementing entrepreneurial education is very important to identify the best models, which could be multiplied at the national and international level. In the following will be presented the main strategies identified in the specialized literature, for gaining competencies in the entrepreneurial field. Hall and Freeman identified a fist strategy for gaining competencies in the entrepreneurial field, by a methodology call job shadowing. This concept is view somehow as a research technique and is useful especially for young citizens, pupils or students, which want to gain job experience from an experienced mentor. They follow closely the activities of a manager /entrepreneur which became for them such kind of mentor, in order to understand and assimilate the work process by doing and understanding the job description and tasks (Hall & Freeman, 2014, p.563). The second perspective of gaining entrepreneurial competencies by young people/ students is by forcing the educational curricula to be correlated with the needs of the entrepreneurial environment (Hornqvist & Lefter, 2014, p.552). If the first method was concentrating by understanding by observation and doing, the second method is focused on understanding by learning educational concepts. The third perspective is about stimulating entrepreneurship through a competitive approach, using business plans analyses (Parente, 2015, 565). This type of approach is somehow similar with the business angel’s concept, in order that is strongly stimulated the competition between the young business entrepreneurs. ENTREPRENEURSHIP IN THE CREATIVE INDUSTRY First of all, it is very important to tackling what is a creative industry and which is the role of the creative industry in the general economic frame. In general, creativity is associated


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with the idea of bringing benefits into organizations by developing new products and services adapted to the client needs. Talking about the creativity, Sigala and Chalk, consider there are two distinct types of creativity: first is focused on the identifying of the customer habits and needs and the other one is related to overcoming the obstacles and solving problems in a creative way. The authors consider also that creativity is tributary to the personal motivation of the manager, but also on personality skills and experience. It also there is strong connections to the characteristics of the organization management style, culture, and leadership (Sigala & Chalk, 2014, pp. 44-58). Taking about the creative industry it is better to understand from the beginning that such an industry is also relevant for the important potential for development but also for its social and cultural parts, most of all based on preserving values and nationalism (Barrowclough & Kozul, 2008, pp.69 -73). In this context, the creative industry is not only a regular one but a special frame which helps the preserving of the specific elements of the national cultural context but also in the global context. Regarding other classifications, it is better to understand that the concept of creative industry is larger than the concept of the media industry, this one being only a part of the entire frame (Bujor & Avasilcăi, 2014, pp.151-156). At the EU level the creative industry is very well represented in the general frame of all industries. In the EU there are some barometers capable of measuring the creativity of an industry, on the base of creativity parameters used in the field. Despite the huge potential of economic growth, Romania is part of the countries with the lowest creativity index in the EU (Bobirca & Draghici, 2009, pp.117 -143). Fortunately, the trend of the evolution for such an industry is very favorable for next years. METHODOLOGY In order to identify specific methodologies for risk management and the maturity level in the Romanian creative industry were held 10 interviews (three women and seven men) with entrepreneurs and managers involved in the creative industry. All the participants at the interview were selected on the criteria of experience in the creative field, but also due to the capability to manage specific risk in daily working activities. The interview contains 10 questions (and also other two questions for calibration) in order to have a gradual approach of the risks profile in the creative industry. It was endorsed the concrete definition of a ranking of the top five risks that may be encountered in the media and advertising industry in general (question 3), as in personal and practical level (question 4). There were also specific questions about risk management methodologies (question 5) used by the entrepreneurs and also the identifying of the most effective techniques for defining risk (question 6). There were formulated questions about the strategies of risk reduction (question 7) and the identifying the risks which are turned into problems (question 8). The last questions of the interview are focused on identifying future prospects and better risk management approaches (question 9) and (question 10).

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RESULTS AND DISCUSSION The interviews were conducted with then 10 entrepreneurs, managers and experts in the field of media and advertising industry. The interviews were held at the end of 2015 - beginning of 2016. All the participants of the interview have graduate higher education institutions and seven of this group has also a master degree in the specific field. The average age of the group is 35 years and the average age for work experience is 8 years. For the first question (I.1) "What do risks represent for you?” there were different responses, most respondents define risk in terms of likelihood and negative impact. In his opinion this is relevant (N.M.) who consider the risk as "a potential problem" while (I.T.) considered that risks are "a danger, a situation more or less known". Another dimension is given to the risks is "opportunity", in other words, something about the chance of getting something positive and desirable. Such an argument is brought by (N.M.) who considers the risks as being "hidden opportunities, as also hidden problems". The two prospects identified risks necessarily imply terms of probability, in other words, all those surveyed associating a first perspective of the concept of risk probability. This different perspective of looking at the impacts of materialization of the risk is to some extent linked to the set of perceptions and values of each decider. Translated to a more simplistic concept, risk can be both a source of "trouble" or "opportunities" according to the decision maker perspective to see the empty part of the glass or the full part of it. For the second question of the interview (I.2) "What is the level of importance that we give to risks, especially the risk management activity they carry out in the media?", a number of 7 respondents mentioned that they give a high level of attention to risks and risk management while only 3 give an average level of importance to this issue. Such an approach can highlight several issues. The first issue relates to the fact that none of those interviewed believe that the identification and risk management should be a matter of little interest or would minimize the role of efficient management of such situations. A second issue concerns the fact that different people show different perceptions of risk. Question number 3 was (I.3) "What judged to be the most important five risks in the media in general? Mention why you chose to highlight these risks". The recorded responses from interviewees indicate very significant information. Interestingly, although the levels of expertise of the respondents that are working in the creative industry were relatively similar, however, their perspective on the most important risks in the media is very different. The recorded answers could be included in certain specific response classes as follows: a first one is the specific class of people who worked with beneficiaries in various areas. The risk mentioned by them was "the default risk of the services performed" and risk "to ruin payment providing poor quality services at lower prices", according to the opinion of (A.A.) as an example. Basically, these risks highlight two distinct aspects: customer frivolity payment (possibly generated by a poor cash flow) and the competition in signing new contracts. A second class is composed of the "lower rating" according to (G.N.) or "decrease of the spotlight" in the opinion of (T.A.). Fears of potential losses which may be registered in these types of metering rankings audience in the media market are some of the most serious, according to most respondents. From here it can be highlighted the


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particular importance that has for media companies and advertising industry to preserve them in predetermined quotas for a high rating in the market. Absolutely surprisingly, after analyzing the responses recorded from interviews with the 10 persons, the only one said that uses a specific methodology for risk management (S.O.), which states that it applies "building risk profile of the business, risk identification, and risk scaling ". All the other nine respondents said they do not use a methodology or a specialized risk management technique, only empirical approaches, the kind mentioned by (I.T.) "a specific methodology I do not know. But I tried to prevent risk when it is possible and to seek solutions to reduce the negative effects" or (T.A.) who said that "I was careful that all customers are informed about the market and the actions that they perform". Very surprising, in the analysis of the responses, is obvious the need to identify and manage risks, while ignoring the specific practices of risk management (according to the methodology proposed in the standard risk practices). It must be mentioned that the managers and specialists investigated not even have a proper standard or set of procedures, to effectively manage the risks identified. The sixth question (I.6) has the following aspects: "what do you think is the most effective way/technique to identify risks and to build a risk profile in media activities?". Although in the previous question, most of the managers and specialists from the media industry and advertisers have recognized that they do not apply specific techniques for managing risk and also they have no methodology. However, in this item, most have proved, however, that there is a knowing of the issue (and only a superficial approach at the level of concept). Thus, (A.S.) concludes that he examines the "weak points, both technically as well as the team`s weak points", (T.A.) is claiming he uses "SMART Objectives and the SWOT matrix. It's an old system, but functional", while (N.M.) proposed "to think outside the box" and (S.O.) speaks of "a strategy validated and certified by the PMI ". There are also 3 possible answers undecided among respondents, suggesting that they are not able to provide concrete information about such an issue. The seventh question (I.7) was related to the dilemma: "How to reduce the risk in the activities you carry out in the media? You can provide some suitable examples in this regard?”. This question is designed to complement the replies received, to complete the overall picture of risk management by managers and specialists in the creative industry. Although most recorded answers suggest a rather empirical approach to risk identification and management issues by respondents, it can also be found elements that are components of risk management methodology (from specific literature). Scenario analysis, better information, education and efficient analysis of previous crises, constitute the main solutions offered by the 10 respondents. Thus (I.T.) said "trying to imagine different scenarios (based on his experience), so I think I'm ready and have a plan B", while (T.A.) believes that "with information, effective customer education can greatly help a good collaboration" or (N.M.) which said that "I think of the crisis we have gone through, me and my colleagues, and I try to be always ready." On the other hand, there are also managers not specifically determined to ensemble a strategy that offers solutions for each risk point identified. Such is the case of (A.F.) who considers that "in general, to protect us from the risk of not being paid, we ask an initial

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deposit which covers our costs. We also offer a limited number of changes when it comes to a creative customer. We try to offer a suitable workplace culture that employees do not leave quickly, limiting the risk of losing their invested time in training. About companies that offer similar services at ridiculously low prices, I hope that at some point will be an association that hinders the functioning of these companies." There are solutions similar to those provided by methodological base adequate risk management literature, illustrative examples being those presented by (S.O.) whose opinion is "reducing the probability of risk and risk impact", or (A.D.) and (V.S.), talking about "taking advantage of the experience gained from previous projects". We conclude for this item that although no methodological theoretically sound knowledge on effective risk management exists in the media, in practice, there are still a number of empirical methods used to solve this problem. The eighth question (I.8) covers the following issues: "Which of the risks highlighted above by you, turned into trouble? How have you solved the problems that materialized?". Interestingly, under this item, each of the risks mentioned in the top positions by respondents, have materialized, becoming problems. So (A.S.) highlighted "rush to present an unverified story", (I.T.) brought attention to the "problem of aggressive mob", (T.A.) mentioned "the problem of visibility", (N.M.) highlighted the "problem tape recording that results in technical failure", (A.F.) stated "the default risk of clients not paying, turned into a problem", while (G.N.) identifies the "problem of change of format". As a conclusion for this item, each of the respondents identified as the main problems, risks that have affected most professional activities in the media. It is interesting here to note the diversity of the problems identified, which correlates well with the specific personal perspective of each person interviewed. The ninth question (I.9) was linked to the investigation of the following problems: "Given past experience, how you tackle your next issue of risk identification and effective risk management?" With regard to effective risk management perspective in the future, respondents' views on this approach have also been multiple. However, in the variety of topics presented and elements of common ground, there are measures such as prevention, information and systematic risk assessment and a special manager appointed to manage risks. In terms of prevention, (A.S.) mentioned that "is better to prevent than to cure" or (M.D.) mentioned, "organizational culture based on prevention are the keys to transforming risk issues". Relating to information and knowledge, (G.N.) states that "as I said before, I continue to inform me" or (I.T.) who appreciates that "I think it would be appropriate to conduct training for crisis situations". Regarding the systematic evaluation, there are views expressed by (T.A.) saying that it is necessary the "regular reevaluation of communication channels, increasing the absorption of data capacity" and (M.D.) stating that it is necessary to "double check (by supervision by a producer, editor-coordinator, artistic manager, etc.) the production and promotion of products." Regarding the last issue related to assigning a special manager to manage risks, this view is expressed both by (N.M.) stating that "it is a need to exist a person who knows how to manage crises through alternative solutions" or in the opinion of (S.S.) "will establish a position specific for the risk manager ".


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Finally, the tenth (and last question) to the respondents, aimed to find an answer to the following challenge: "What you consider to be the main three qualities that should have a media entrepreneur to effectively manage risks in the projects that are carried out?”. The main quality of media entrepreneurs most frequently given by the 10 respondents was: professionalism (knowledge of the business risks), speed in solving problems, forecasting, capacity for leadership, good attitude towards risk and distributive attention. All these qualities must accompany a good specialist profile in the management, with specialized studies in risk management and especially with expertise in the field. CONCLUSIONS First is very important to conclude about the special preoccupation of European Commission about the problem of entrepreneurship as a premise for the sustainable development of the economy, with a keen interest in the entrepreneurship for young citizens. There are certain policies at the EU level regarding the support of the entrepreneurs and the specific business environment. Second is important to underline that the creative industry in Romania has a great potential but is not very developed by the point of view of completing the conditions of the EU Commission. The third conclusion is related to the main outputs of the interview: it is not a structured culture for risk analysis in the creative industry. The maturity level of risk management is almost on the basic concept. The entrepreneurs and managers understand very clear the role of risk management in the management of decision, but they also admit that there are no specific competencies for an efficient risk management. REFERENCES Ahmad, N., and Seymour, R.G. 2008. Defining Entrepreneurial Activity: Definition Supporting

Frameworks for Data Collection. Available online: http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?doclanguage=en&cote=std/doc.

Barrowclough, D., and Kozul, Z. 2008. Wright, Creative Industries and Developing Countries. Journal of Cultural Economics 33(1), 69-73.

Bobirca, A., and Draghici, A. 2009. Măsurarea Economiei Creative – Studiu de caz România. The Romanian Economic Journal XII, 34, 117-143.

Bujor, A., and Avasilcai, S. 2014. Creative Entrepreneurship in Europe: A Framework of Analysis. Annals of the Oradea University. Fascicle of Management and Technological Engineering, 151-156.

COM. 2012. ENTREPRENEURSHIP 2020 ACTION PLAN. Available online: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0795:FIN:en:PDF.

ECOTEC. 2010. Towards Greater Cooperation and Coherence in Entrepreneurship Education. Available online: ///D:/Users/Patmedin/Downloads/entr_education_panel_en.pdf.

European Comission. 2012. Entrepreneurship Education at School in Europe, National Strategies Curricula and learning Outcomes Education, Audiovisual and Culture Executive Agent. Available

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online: http://eacea.ec.europa.eu/education/eurydice/documents/thematic_reports/135EN.pdf.

Hall Jori, N., and Freeman, M. 2014. Shadowing in Formative Evaluation: Making Capacity Building Visible in a Professional Development School. American Journal of Evaluation 35(4), 562-578.

Henry, N., and Chatzichristou, S. 2014. Expert Group on Indicators on Entrepreneurial Learning and Competence: Final Report. Available online: http://ec.europa.eu/dgs/education_culture/repository/education/library/reports/2014/entrepreneurial-expert-report_en.pdf.

Hornqvist, M., and Leffler, Eva. 2014. Fostering an entrepreneurial attitude – challenging in principal leadership. Education & Training 56(6), 551-561.

OECD. 2013. The European Commission Policies for Inclusive Entrepreneurship in Europe. Available online: http://www.oecd.org/cfe/leed/inclusive-entrepreneurship.htm.

Parente, R., et al. 2015. Visibility and Reputation of New Entrepreneurial Projects from Academia: The Role of Start-Up Competitions. Journal of the Knowledge Economy 6, 551-567.

Sigala, M., and Chalkiti, K. 2015. Knowledge Management, social media and employee creativity. International Journal of Hospitality Management 45, 44-58.


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STRATEGIC HUMAN RESOURCES MANAGEMENT SPECIFICITY IN ORGANIZATIONAL ENVIRONMENTS FOCUSED ON INTRAPRENEURSHIP Carmen NOVAC1 Raluca Silvia CIOCHINĂ2 ABSTRACT The purpose of this paper is to provide a basic understanding of intrapreneurship as a key concept in contemporary organizational construct and of the bidirectional relationship between this and the Strategic Human Resources Management (SHRM), both at theoretical and practical level. Based on the research carried out, we want to find answers to the following questions: 1) What are the SHRM practices contributing to the potentiation of the intrapreneurship in the given context? 2) How are implemented those identified practices in the studied organization? and 3) What are we learning from the analyzed case related to the intrapreneurship and its relation to the SHRM? The purpose of this process is to discover elements and correlations between SHRM practices and intrapreneurship within the organization selected as a study object and stating there to extrapolate in order to provide inspiration and guidance to other companies operating or wishing to pursue intrapreneurial initiatives. Therefore, we identify the opportunity to develop a depth research on the correlation between intrapreneurship and SHRM from a systemic perspective, considering to define a reference framework which could achieve a theoretical link between the two concepts, and which could then be based on practical observations. We also aim to discover what SHRM practices are used by the organization we study and how they support the development of intrapreneurial initiatives. KEYWORDS Intrapreneurship; corporate entrepreneurship; internal corporate entrepreneurial behavior; entrepreneurial process.

EMPIRICAL RESEARCH Argument Following the discovery of the restricted volume of theoretical material on the correlation between the practices of Strategic Human Resources Management (SHRM) and intrapreneurship, we identified the opportunity and the necessity to help expand existing knowledge on the subject and we thought that there are two possible ways in which the current job can make this contribution, as the theoretical deepening aimed at highlighting the subject through an effort to systematize the relationship between the two concepts (Cismaru, Leovaridis & Dumitriu, 2017, pp.11-56) and practical exploration of the phenomenon by analyzing a separate case, in a dynamic business environment.

1 National University of Political Studies and Public Administration, Faculty of Communication and Public Relations, 30A Expoziției Blvd, Sector 1, 012104, Bucharest, Romania, [email protected]. 2 National University of Political Studies and Public Administration, Faculty of Communication and Public Relations, 30A Expoziției Blvd, Sector 1, 012104, Bucharest, Romania.

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By analyzing this case we hope to be able to understand the concept of intrapreneurship as an actual application concept, identified in a dynamic and singular contemporary space that allows us observing its practical relevance. Objectives The objective of this paper is to provide a basic understanding of intrapreneurship as a key concept in contemporary organizational construct and of the bidirectional relationship between it and SHRM, at both theoretical and practical level. Cumulating these analyses, we intend to find answers to the questions: 1. What are the SHRM practices contributing to the potentiation of the intrapreneurship in the given context? 2. How are implemented those identified practices in the studied organization? 3. What are we learning from the analyzed case related to the intrapreneurship and its relation to the SHRM? Methodology This research is made, therefore, as an inductive approach. Instead of working from predefined assumptions, to validate or invalidate them, we work on a research issue and the questions related to finding a contextual answer, anchored both in existing theory at the present time and in a real case of business area, where we can observe in real time the relationship between SHRM practices and intrapreneurship. Since this research aims to identify SHRM practices that support intrapreneurship (within the studied organization), a qualitative method is assumed. Given the above, research in this paper is taken as a case study (Yin, 2009, pp.5-12; Baxter & Jack, 2008). Positioning current case study is at the intersection between the descriptive and exploratory model. The case study in this paper is exploratory through its effort of identifying the existing intrapreneurial initiatives in the selected organization. Once discovered the facts, the intrapreneurship nature within the organization can be explored in more depth, appealing to relevant theoretical concepts as they were identified, resulting in a descriptive analysis of SHRM practices used by the organization in the context of its intrapreneurial initiatives. This paper is based on a combination of primary and secondary data. Secondary data are defined as existing data, previously collected and composed, in order to further research, whereas primary data are specifically collected for current research (Saunders, Lewis & Thornhill, 2009, pp.256-288). There have been so identified and analyzed strategic documents, planning initiatives, project reviews, and evaluations. After analyzing the documents, there were identified areas that needed deepening of information through the application of complementary research tools. In-depth interviews conducted with ten key people in the studied organization (two project managers, two line managers, and six engineers, selected so in order to obtain distinct perspectives and complementary on the subject) were thus the complementary source of


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data for this study. These were held in a narrative approach chosen to facilitate the extraction of the maximum possible amount of information. This narrative approach is consistent with qualitative research method since, in general, a story contains background information, such as enriched content by using this method. Interviews were conducted between November-December 2016 and had as objective to deepen the understanding of intrapreneurial initiatives within the company, the nature of their structure and, especially, the SHRM practices implemented in support of their development. Each interview was conducted individually and interviewees were asked about the company itself, about their perception of intrapreneurship, creativity and innovation, namely their role in the organization to which they belong. It was sought to obtain information and views on the manner in which intrapreneurship is applied, promoted and supported by the management team, using the proposed categories structure by the interviewer and derived from the theoretical part of this work. The exploratory interviews occasionally deviate from the planned structure of questions to deepen one aspect or another, depending on the person specific being interviewed and the intermediary responses provided by this person. Collected data were supplemented by five days of unstructured participative observation in the company and informal conversations with various employees of the organization. The object of the case study To try to understand what SHRM practices enhance intrapreneurship, we chose the object of the case study to be mechanical engineering division of a large auto industrial company. Being part of an industrial group with tradition and history dating back to the early part of the twentieth century, this division is expected to suffer from a lack of intrapreneurship climate. The imperative of precision and concentration related to the processes, rules and incremental performance increase would typically discourage exploratory, creative and uncertain initiatives, specific to intrapreneurship. Paradoxically, it is this type of organization, exposed to the constant innovation imperative in the industry have greatly to benefit by encouraging intrapreneurship and extremely to lose by discouraging it. The concerned company is considered to be one of the most creative and innovative in the field of auto industry production and the CEO is actively involved in government projects to encourage entrepreneurship in students’ case from technical faculties in the area. This management focus on entrepreneurship, in conjunction with other mentioned context factors, make this organization an interesting object of study, with the potential to provide valuable insights on growing intrapreneurship through SHRM practices. From an operational perspective, this organization was chosen on the background privileged access to information and people, in the division due to the existence of a professional connection between it and one of the authors of the paper. For confidentiality reasons, it is not possible to identify the name of the company or its employees. Hereinafter, the industrial group which includes studied division will be identified by the generic name ABC and division itself by name D.

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It could not work in the complete absence of a structure in the analysis organization's effort because it was searched for answers to questions in the research and without a focus on the effort of understanding, could not get coherent answers. Thus, the first line of analysis of the selected organization is the conceptual dimensions of intrapreneurship as it was summarized by Antoncic and Hisrich (2001, pp.495-527), namely: corporate venturing, innovation, proactivity, and self-actualization. Identifying these dimensions within the studied organization aims to define and classify the intrapreneurship climate in order to contextualize SHRM practices implemented in its support (Antoncic & Hisrich, 2003, pp.7-24). In addition, in the theoretical funding was observed the corroboration between the two major studies on the enhancing factors of intrapreneurship (Mohanty, 2006, pp.99-105), respectively (Eesley & Longenecker, 2006, pp.18-23), most of them pertaining to SHRM, namely: clearly supported innovation processes, clear vision of management, empowerment of employees, senior management support, reward system, effective communication, people encouraging, teamwork, ensuring access to resources and multi-disciplinary training. In these studies, it is already identified a higher proportion of discretionary practices of SHRM than the traditional (Hayton, 2004, pp.375-391) in encouraging and supporting intrapreneurship (Christensen, 2005; Kenney & Mujtaba, 2007). We find this dominance in the analysis of Hornsby, Kuratko and Montagno (1999, pp.9-24) who identifies five enhancing factors of intrapreneurship in the field of SHRM practices, namely: the appropriate use of rewards, getting management support for innovation, ensuring the availability of resources, an organizational structure favorable to cooperation and transfer of information respectively encouraging the risks taking. There are specific supportive practices that can help the internal human resource processes that support intrapreneurship. As far as remuneration policy development is concerned, organizations need to invest time in defining the prerequisites that foster intrapreneurship, both from an internal and external point of view. Therefore, while remuneration and providing consistent finances towards developing new projects and people investments, contributions should be encouraged for the purpose of fostering a cooperative and proactive environment, where risk taking is encouraged (Steele & Baker, 1986). Thus, a payment structure should be considered, especially for the factor of accountability it entails – when a remuneration system is designed, the intrapreneurial unit is no longer isolated from the rest of the organization, but it becomes a risk factor that includes performance tracking, contributing to higher involvement and perseverance in the intrapreneurial project (MacMillan, 1987). Employee engagement is specifically important considering that intrapreneurial initiatives become profitable in several years. Rigtering and Weitzel (2013), on the other hand, identified both formal and informal factors affecting employees` intrapreneurial behaviors, such as the ones reflecting idea generation, exploitation and implementation. According to the authors, intrapreneurship is indirectly influenced by innovative workplace behavior and employees` personal initiatives, showing the impact of internal organizational elements have on future intrapreneurship developments. Moreover, the authors interestingly discovered that risk taking is not influenced by formal organizational work context characteristics, such as horizontal participation and project resources, while trusting the manager and building an


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interpersonal relationship are especially important when personal initiative and innovative behaviors are concerned: „Employees that do not trust their manager display lower levels of innovative workplace behavior when working in highly formalized organizations. Employees that trust their manager are, on the other hand, not obstructed by high levels of formalization and show even more innovative workplace behavior” (p. 355). When formal procedures and rules are involved, they can be inhibiting for employees who need to be motivated and supported by their managers. This type of constrained-free environment (including resource related) appears to have a positive influence on developing an intrapreneurial mindset amongst employees as the organization is perceived to provide support for their employees when they behave in this direction. As far as organizational culture is concerned, Morris, Davis and Allen (1994) considered that individualism supports creativity, having an important influence on intrapreneurship, however, collectively oriented behaviors and thinking are better at supporting group cohesion and acceptance from peers. In this sense, team performance becomes, within a favorable organizational climate, becomes an indicator whether human resources management is working relevantly. Innovation-friendly cultures are developed when management supports employees and organizational reward systems are set (Chandler, Keller & Lyon, 2000). CASE STUDY Intrapreneurship profile of the organization ABC Group, from which D division is part of, is an auto international industrial group. Division D of mechanical engineering serves customers around the world, especially in the auto industries, both remotely via the headquarters and also via local offices and divisions in certain markets. D division management is aware that the company's success depends on the skills of the employees and therefore employees are its most important resource and are constantly working to develop and improve mechanisms and practices to maximize the impact of these resources. The company does not contain a specific division of acquisitions or strategic planning activities that aim at the developing of new spheres of activity, giving priority to reinforce the position of D division on current markets. Corporate venturing seems not, therefore, to be an intrapreneurial priority for D division. To some extent, we might consider instead that D division itself is the product of an initiative of corporate venturing, this being a separate and distinct division of ABC Group. The absence of corporate venturing initiatives does not mean that D division does not take a proactive position in developing new competitive advantages. Moreover, intrapreneurship within D division is also fit with the scope of self-updating: after more than a decade, the entire organizational structure of the company has been redefined, making a transition from a matrix model strictly to a hybrid model, where the focus is primarily on the formation of multi-disciplinary teams, without completely eliminate the specialized excellence centers in certain disciplines.

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In the following will be analyzed the manner in which D division uses the five SHRM practices as they were defined by Hornsby, Kuratko and Montagno (1999, pp.9-24) in supporting intrapreneurship and how these applications are perceived by the employees of the organization. Reward and remuneration practices As illustrated in the theoretical foundations of this work, intrapreneurship behavior can be encouraged by developing effective reward systems that take into account the objectives, performance, and achievements of the individual and/or team. That is, at least, the approach adopted in D division organization trying to create a mixed system that gives employees both emotional and financial rewards, specific to independently developed companies and also benefits of belonging to a group of amplitude, with vast resources and developed policies for the amortization of failures. Rewards portfolio that D division provides to its employees is extremely varied, ranging from the base rewards as consequent pay of wages, bonuses and promotions, to issues more consistent as offering shares in the company or share in profit of launched initiatives and progressive as autonomy, flexible working hours, public recognition of merits, offering working time and discretionary access to the resources of the organization to explore unstructured personal projects. As an organization with an international presence, the D division incentives vary from one culture to another, from one division to another and, to some extent, from one individual to another. For example, financial rewards in the form of bonuses are highly appreciated and awarded primarily in D division units from Eastern Europe, while in Western Europe, flexible working hours and a degree of operational autonomy in the selection and implementation of projects are rather appreciated, especially when this flexibility is offered in a public and transparent manner that encourages fellow admiration and desire to achieve an equivalent status. Support from senior management We met consistently and vehemently idea that it is essential for senior managers to support entrepreneurial initiatives in a public, open and transparent manner, even if they are not deeply involved in these processes. One of the employees says clearly and distinctly: „My manager provides resources that make it possible to explore new opportunities. ‟ On the other hand, D division employees believe that the support received from colleagues is also extremely important and valuable. One of the interviewed employees stated that for their managers: „... it is easy to bring people together for intense working sessions on issues and new problems, even if they are busy ...‟ which indicates that, in general, support from employers to employees is quite high.


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Availability of resources for innovation As identified earlier, D division considers human resources, through their knowledge and capacities, to be the most important resources of the organization more important than patents owned by the company, as human resources contribute dynamically and consistently to continuous value creation for the company. In connection with this, one of the D division employees says: „... time and money should be earned, which means that first, you have to finish your assigned priority project before you can play on soul projects and personal initiatives. ‟ and continuous: „... occasionally, we explore different directions that are not directly related to our core products, only to expand the cognitive horizon of the team and brand awareness within the organization. We think that is likely to be something in the outer world which, in combination with other things to which we have access, could be very innovative. However, resources are limited, finite and consequently, we must focus on what is most important, on the adjacent areas of our expertise and on the company's priorities. ‟ For example, many engineers located in Western Europe, have flexible working hours, which is very much appreciated and is a strong motivational factor for them. At the time of the case study, however, the company contemplates the idea of introducing fixed working hours for all employees. The reaction to this idea of one of the engineers was eloquent: „...it would be a very unfortunate move; if the program is fixed, then I would just concentrate on projects that were assigned to me and nothing more. ‟ On the other hand, the industrial nature and the extent of the organization can provide for intrapreneurs more flexibility and more choices. One of the managers exposes very pertinently this side of the debate: „... 10% of a billion creates much more financial flexibility than 10% of a million and exploring ideas costs money. ‟ Availability of resources plays such an important role in the implementation of the D division intrapreneurial ideas but circumstance limitations can be overcome through a strong argumentation and motivation. Organizational structure favorable to cooperation D division has further specialized departments but their members are dynamically assigned in project teams and these teams are often positioned in the same physical space. This system has been received with enthusiasm by the employees because the current system maintains a clear management line and an intelligible prioritization of projects. One of the company's employees says: „Previously, the focus was on individual specialization and was often working simultaneously on four different projects without knowing too clear whom to report and which of your projects has the highest priority for the company. Too often, you gave priority to the project that received the most pressure and that didn’t always reflect the objective reality of company's needs. Beyond that, because of all the external pressures, you had no freedom to express your own preferences regarding the projects in progress.‟

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Basically, the new structure gives employees the ability to focus on both the projects and also on their wider role in the company. One of the highly interesting effects of this hybrid model, both organizationally and in terms of management team response consists in the occasional phenomenon of spontaneous crystallization of working groups through employee’s volunteer initiative. By adopting this approach, one of the managers considers that: „... it facilitates the embrace of the idea within the organization. Instead of investing resources and energy in pushing a new idea through the system, we invest in the intrapreneurial team giving them the resources they need, a relatively high degree of autonomy in their use and a relaxation of the corporative rules, for materializing the idea in question. So, the intrapreneurial team becomes the catalyst for the promotion of the idea in the company and get easier the support of other units. ‟ Apart from informal networks, D division has developed a series of formal networks, including universities, customers, suppliers and groups to exchange experiences, to potentiate the intrapreneurship by accessing some knowledge resources that the organization needs but that does not hold, internally. As for the formal network development policy, generally, one of the D division managers says: „... the network connected to the universities is primarily developed to give us access to basic research beyond our specialty that can be useful. Relations with other companies or experience exchange groups usually are drawn from the assumption that they can do something different, from which we can learn. ‟ D division specialists participate in experiences exchange groups and also test new ideas on people who have not adapted yet to the thinking manner specific to the organization. Encouraging risks taking The need to encourage employees to take calculated risks has been identified repeatedly as an enhancer factor of intrapreneurship and SHRM policies play a major role in the establishment of this attitude in a company. In D division it is addressed the risk from a Darwinian perspective, which says one of the managers, „means the survival of the most powerful.‟ Projects are very autonomous so if an idea is linked to an ongoing project, the responsibility comes to the project leader and core team to decide if it is implemented or not. One of the employees says: „... you must keep your word and to be honest ... then you can take risks, but you must be honest and admit if you stretched too far, to recognize that you must take a step back. Then you fail and nobody complains because I know you did your best and, in most cases, you have a good chance of success.‟ At D division, most ideas are related to the planned projects because they are planned for four years earlier. One of the advantages of such a long planning horizon is that it offers employees the opportunity to deconstruct a project and come up with new ideas. As stated by one of the employees:


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„... if the organization would not give me so much information, then I probably would not be able to have so many ideas.‟ It is considered in the D division that when employees have time to think of their projects to come, the risk is lower compared to short-term planning, under the effect of contextual emergencies. Organizational culture One aspect of the organizational culture, particularly interesting in terms of potentiation of intrapreneurship consists in style, specificity, and effectiveness of communication within the organization. A first study level of communication within D division is the language itself. The official language of the organization is English and, through this, are created some difficulties. Employees which are talking with all customers and suppliers in English (even when both interlocutors have the same native language, other than English), consider this to be very frustrating because it can be a bottleneck in the understanding of the details. One of the employees explained: „You can articulate, through language, the country you grew up in, its culture and its values. The entire set of values is integrated into this language ... the English, French, and Romanian are different, even if there are in a somewhat similar. The language, culture, and geography are closely related and together deliver precision.... and when you try to express yourself in another language, then you lose precision.‟ However, the management team is strict on this aspect of communication, involving winner efficiency by eliminating the need to translate requirements and reports in multiple languages. Alongside with the official language, there are at least two other languages at D division: one specific to the organization and one technical. After an informal estimate of one of the employees, new recruits take about a year to fully understand what is being said in the company. But not all employees are engineers and one of the engineers says: „... we and the rest of the organization do not speak the same language ... however, the tone is firm and free, but friendly; no one is afraid to ask questions or request clarification.‟ The everyday communication within D division is mostly informal, encouraging various interactions throughout the entire organization and enhancing through this the development of informal collaborative networks, mentioned above. One of the employees specifies: „Generally, information and communication within and between departments work very well, perhaps too well because almost no conflicts are recording; we are often too polite ... it takes too long to make a decision because we aim to build consensus and too many people are involved in the decision making.‟ To streamline the decision making and communication around it, D division is currently working to develop a common information structure for meetings, reports and internal documents in general, which aims to facilitate the sending, storing and accessing

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information created and transmitted by employees. The team leader of the group of mechanics explains: „We can write a report ... but if people will read it, some will read one way, some another, while some will not read at all. Through these meetings, we get a summary of all of the facts and if something is unclear, we can ask questions and deepen the problem. I chose this group information dissemination strategy because so everyone is simultaneously informed and after the meeting, according to information relevance and interest, each participant can go home or can easily request more information.‟ Decision-making process within the D division plays an important role in building a favorable environment for intrapreneurship and has changed radically over the past few years. Almost all D division employees are now experts on specific subjects, often niche. Amid this reality, making a decision is now deeply collaborative, requiring the consensus of many such specialists. One of the managers says: „... amid complexity, there is no intrinsic right answer. What could be a good solution for one person may seem to be a mistake for another, even if the result would be, perhaps, the same ... What is most important is that the employee who must execute the idea in question to feel that is the right solution and the best forward way.‟ By decentralizing decisions, D division aims to develop a high flexibility and a high level of commitment among employees, who are thus encouraged to make an extra effort to ensure the success of initiatives in progress. CONCLUSIONS Although the five enhancers factors of intrapreneurship (rewards system, management support, access to resources, collaborative organizational structure, and tolerance of risk) are largely found in D division case and the factor of organizational culture supplements the understanding of the intrapreneurship profile of the company, we believe that this analysis framework provides only a superficial understanding of the impact that SHRM practices have on intrapreneurship in this organization. Along with the support of senior management, projects also need clear resources to be initiated, intrapreneur’s encouragement, inspiration and motivation being though necessary, insufficient for the execution of an independent initiative, no matter how small it is. Even if employees believe it would be preferable to have segments of time allocated to formal innovation efforts (either being daily, weekly or monthly assignment), teams are often very busy with current projects and would jump, probably, over these reserved segments to ensure effective delivery of priority projects. We deduce that the new intrapreneurial initiatives need not respect an extraordinary set of rigid norms and organizational rules, at least to a point, this indulgence giving them greater flexibility than that of the organization framework in which it is formed.


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In terms of intrapreneurial initiatives sources, we notice that new ideas are generated throughout the entire organization, both through strictly internal ideation and collaboration with customers and suppliers, and then further developed through semi-organic interaction between departments and specialists. The organization prefers to encourage this initiative because it believes that the alternative - in research and development department - is conceptually limited and it usually produces „innovations driven by the technical ability of the company rather than market demands.‟ Intrapreneurship is encouraged so as the need and the opportunity to innovate is distributed throughout the organization and not concentrated in a technical core. Thus we identify the opportunity to develop a thorough research on the correlation between intrapreneurship and SHRM from a systemic perspective, defining a reference framework that can achieve a theoretical bridge between the two concepts that can then be based on practical observations and resulted in a specific pattern. REFERENCES Antoncic, B., and Hisrich, R.D. 2001. Intrapreneurship: Construct Refinement and Cross-Cultural

Validation. Journal of Business Venturing 6, 495-527. Antoncic, B., and Hisrich, R.D. 2003. Clarifying the Intrapreneurship Concept. Journal of Small

Business and Enterprise Development 10(1), 7-24. Baxter, P., and Jack, S. 2008. Qualitative Case Study Methodology: Study Design and Implementation

for Novice Researchers. The Qualitative Report 13(4), 544-559. Christensen, K.S. 2005. Enabling intrapreneurship: the case of a knowledge-intensive industrial

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economy. Saarbrücken: Lambert Academic Publishing. Chandler, G.N., Keller, C., and Lyon, D.W. 2000. Unravelling the determinants and consequences of an

innovation supportive culture. Entrepreneurship Theory and Practice 25(1), 59–76. Eesley, D.T. and Longenecker, C.O. 2006. Gateways to Intrapreneurship. Industrial Management

48(1), 18-23. Hayton, J.C. 2004. Strategic Human Capital Management in SMEs: An empirical study of

entrepreneurial performance, Human Resource Management Journal 42(4), 375–391. Hisrich, R.D., Peters, M.P., and Shepherd, D.S. 2009. Entrepreneurship. 8th edition, Princeton:

McGraw-Hill/Irwin. Hornsby, J.S., Kuratko, D.F., and Montagno, R.V. 1999. Perception of internal factors for corporate

entrepreneurship: A comparison of Canadian and U.S. managers. Entrepreneurship Theory and Practice 24(2), 9-24.

Kenney, M., and Mujtaba, B.G. 2007. Understanding Corporate Entrepreneurship and Development: A Practitioner View of Organizational Intrapreneurship, Journal of Applied Management and Entrepreneurship 12(3), 73-88.

MacMillan, I.C. 1987. New business development: A challenge for transformational leadership. Human Resource Management 26(4), 439-454.

Morris, M.H., Davis, D.L., and Allen, J.W. 1994. Fostering corporate entrepreneurship: Cross-cultural comparisons of the importance of individualism versus collectivism. Journal of International Business Studies 25(1), 65-89.

Mohanty, R.P. 2006. Intrapreneurial Levers in Cultivating Value-innovative Mental Space in Indian Corporations. Vikalpa 31(1), 99-105.

Rigtering, J.P.C., and Weitzel, U. 2013. Work context and employee behaviour as antecedents for intrapreneurship. International Entrepreneurship and Management Journal 9(3), 337-360.

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Yin, R.K. 2009. Case Study Research. Design and Methods. 4th edition. New York: Sage Publications.


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THE RELATIONSHIP BETWEEN CORPORATE WISDOM AND CORPORATE ENTREPRENEURSHIP

Metehan ORTAKARPUZ 1 Ali ALAGÖZ2 ABSTRACT In order to transform knowledge into value-creating activities in the most efficient manner, developments and innovations in knowledge management are developed in the direction of business objectives. One of the most important recent advances in the field of knowledge management is that the concept of wisdom is investigated in the literature. This concept constitutes institutional wisdom when dealt with on an institutional basis. Today's competition conditions move corporate wisdom understanding on the agenda due to the insufficiency of traditional knowledge management approach towards sustainable targets. and to business vulnerability to rapidly changing conditions. Entrepreneurship is one of the most popular phenomena influenced by the developments in knowledge management. Today, entrepreneurship necessitates the creation of value by seeing opportunities, reaching different information before others, and using it differently from others, thereby becoming a member of the information society. Entrepreneurship processes aiming to create value through transformation and innovation studies in an organization are called "corporate entrepreneurship". Corporate entrepreneurship is a capability that enables businesses to gain competitive advantage through conscious efforts which actuate internal and external initiatives against changing conditions and uncertainties. In terms of the elements they are based on, corporate wisdom and corporate entrepreneurship seem to have common characteristics. It is foreseen that these two popular concepts directly contribute to each other in business strategies and there is a close relationship between them. In this study, we examine the two concepts in all dimensions and theoretically determine the relationship between mentioned phenomena. The existence of the projected relationship has been clearly presented as a conceptual assessment in the conclusion of this study. KEYWORDS Corporate wisdom; corporate entrepreneurship; knowledge management; entrepreneurship.

INTRODUCTION One of the most important developments in the field of knowledge management in recent times is that the concept of ‘wisdom’ has taken place in the literature. Wisdom is an important virtue which is at the top of the hierarchy of data, information, and knowledge and integrates the knowledge with intellect and experience that provides deep insight, interpretation, reasoning, and foresight capabilities to the knowledge management. ‘Corporate Wisdom (CW)’ is formed by the formation of the knowledge at the institutional level and the placing on top of the knowledge pyramid. In an understanding of CW,

1 Selcuk University, Nurullah Ercan St., Akoren Ali Riza Ercan V.H.S., Akoren-Konya, 42060, Turkey, [email protected]. 2 Selcuk University, Alaeddin Keykubat Yerleşkesi Selçuklu- Konya, 42000 Turkey, [email protected].

mailto:[email protected]

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enterprises handle individual wisdom on an institutional basis and integrate with corporate culture and knowledge management to target optimum information management. One another of the most popular phenomena affected by improvements in knowledge management is entrepreneurship. Today, entrepreneurship aims to have the ability to analyze and synthesize, to be educated and proactive, to be able to think strategically, to create a mission and vision and to become a member of the knowledge society and it contributes to the renewal of social and economic structure by using knowledge in the best way. In this context, the term of ‘Corporate Entrepreneurship (CE)’ approach is considered as the most dynamic factor in fostering new applications for companies to extend their short life span, gain competitive advantage and achieve sustainable growth. The CE tendency provides to react to the changes and oppressions brought by the environment within the framework of institutional sources and competencies of an enterprise. In this article, the projected close relationship between CW and CE is examined in all their dimensions. The first chapter of study which consists of three chapters, deals with CW, the second chapter deals with CE, and the third chapter deals with the general relationship between them. CORPORATE WISDOM The framework of corporate wisdom concept Wisdom is a concept that requires the use of intuitive ability arising from experience to look beyond the apparent state, to recognize extraordinary factors, and to predict their unusual consequences (Thierauf, 1999, p.9). Wisdom is central to disciplines such as business ethics, sustainability, transformational leadership, corporate citizenship and social responsibility and workplace democratization (Hays, 2007, p.17). It is a vital institutional resource in business life (Thierauf, 1999, p.9). CW expresses being wise and its qualification of an institution, being able to react rational responses to unexpected situations, managing the existing and new knowledge of the institution, and displaying of good, moral and exemplary behaviors against all its stakeholders (Kaygısız & Caglıyan, 2014, p.228). CW is an umbrella that not only brings together information in the form of optimization and business intelligence but also provides ways to help decision-makers in reaching optimal and wise decisions The characteristics of corporate wisdom On the basis of corporate knowledge, there is an aim to produce valuable information so that decisions can be taken to optimize benefits of the business. In this direction, the characteristics of knowledge management targeted by CW can be summarized as follows and shown in Figure 1. - Diversification of knowledge sources - Flexible knowledge production processes - Integration of technological infrastructure and support systems


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- Rational responses and solutions to unexpected situations, changing conditions and problems - Equal and continuous employee involvement to the knowledge production processes - Reveal of implicit information - Formal and informal information-based Reporting

Figure 1. The characteristics of corporate wisdom

Thierauf and Hoctor (2006) point out the five essential elements for the development and implementation of the new system in their study that they present concepts and applications of optimal knowledge management.

(1) Focus on the big picture of organizational operations for “what needs to be done” over time (2) Undertake creative thinking as related to problem finding (3) Concentrate on those activities that create and distribute unique values for all parties, (4) Employ newer business models and computer software and techniques for developing new opportunities and solving organization problems (5) Use a learning organization to adjust to changing times

The components of corporate wisdom It can be deduced from the definitions in the literature about the components of CW as below. Bierly, Kessler and Christensen (2000) have demonstrated the impact of three fundamental concepts as transformational leadership, corporate culture and structure, and knowledge transfer, on CW. Hays (2007) examined sustainability, transformational leadership, corporate ethics, citizenship and social responsibility and democratization disciplines as an understanding of CW. Spiller (2011) has noted the presence of wisdom with culture, social and environmental interactions in the institution. Intezari and Pauleen (2014) crossed ethical, moral and practical virtues in the direction of CW with knowledge management. Thierauf and Hoctor (2006), Gupta (2003), Chong and Choi (2006) have pointed out the importance of organizational learning and learning organization concepts in knowledge creation and distribution. Popadiuk and Choo (2006), Karakocak (2007) have addressed the necessities of innovation and keep up with change subjects for optimal knowledge management. Employee involvement, considered as one of the most important keys to knowledge management, has also been recognized by Ryan and Prybuyo (2001), Moffett et al. (2003), Caglıyan and Kaygısız (2014), Davenport et al. (1998) as an element of CW (Ortakarpuz, 2017, p.43). When all these studies and common opinions are synthesized, the basic concepts that constitute the understanding of CW, can be amount as ‘transformational leadership’, ‘corporate culture and structure’, ‘knowledge transfer’, ‘learning organization and organizational learning’, ‘corporate democracy’, ‘corporate sustainability’ and ‘corporate innovation and change’ and also as shown in Figure 2.

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Figure 2. The components of corporate wisdom

CORPORATE ENTREPRENEURSHIP Conceptual framework for corporate entrepreneurship Entrepreneurship, which is to develop a new job or improve existing business, has been defined as studies by Share and Venkataraman (2000) about who, how and when to explore and develop the opportunities that will affect the bring forth of future products and services (Landström et al., 2012, p.1154). In parallel with the concept of CE, many concepts such as internal corporate entrepreneurship, corporate enterprise, internal enterprise, new business enterprise and internal entrepreneurship have been used in the literature. General definitions focus on process development, diversification, the transformation of ideas to the actions, the combination of resources and innovation. Burgelman (1983) stated that while CE is a process of diversification through internal development, such these diversifications have to create new resource combinations to expand in areas that are not relevant to the business or to adapt to existing areas of competition and opportunity. Guth and Ginsberg (1990) defined two types of events and processes surrounding them, such as the emergence of a new job in an existing organization and the transformation of the key ideas on which they are based. According to Block and MacMillan (1993), the following are required for CE (Sharma & Chrisman, 1999, pp.14-15):

(1) It needs to include a new activity for the business. (2) It needs to be revealed from inside or be managed. (3) The organization should contain a greater risk of failure or greater loss of possibility in the more important field of activity. (4) It should need rather an ambiguity than the actual work that they do. (5) A different management should be applied during the execution of the work is subject to separate administration. (6) It should be initiated to increase sales, profitability, productivity or quality.


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The dimensions of corporate entrepreneurship It has the strategic orientation in CE that exhibiting basic entrepreneurial features for decision-making methods and practices of business. In line with this approach, while conservative firms are less risky, less innovative, and follow the ‘wait and see’ policy, the entrepreneurial organizations are risky, innovative and proactive (Miller, 1983). In this context, innovation, risk taking, proactivity and aggressive competitiveness tendencies stand out as dimensions of CE with common view of writers like Miller (1983), Covin and Slevin (1991), Lumpkin and Dess (1996, p.2001), Barringer and Bluedorn (1999), Zahra (1991), Pittaway (2001), Dess et al. (2003), Wiklund and Shepherd (2005), Hayton and Kelley (2006) (Bulut et al., 2008, p.1395). Shown in Figure 3.

Figure 3. The dimensions of corporate entrepreneurship

The elements/components of corporate entrepreneurship models CE is defined as a process equipped with features such as freedom and autonomy that enable innovation in business. This process, which is defined as the organizational democracy, encourages employees to freedom within the enterprise. CE is recognized by researchers such as Burgelman (1983), Guth and Ginsberg (1990) as a management practice that promotes the entrepreneurial activities of employees in the enterprise. With this management application, it is aimed to bring the competitive advantage of the operator by bringing new businesses to the market (Sharma & Chrisman, 1999, pp.14-15). In the literature, corporate entrepreneurship oriented models based on innovation, risk-taking, proactive and competitive aggressiveness have been developed. Table 1 shows the elements of each model in detail. Table 1. Corporate entrepreneurship models

Authors Model Elements/Components

Covin and Slevin (1991)

Entrepreneurship Model as Business Behavior

- External variables; external environment, technological development, dynamism, environmental reactions, industrial life cycle - Strategic variables; mission, business practices, competitive tactics. - Internal variables; values/philosophy of top management, organizational resources, and qualifications, corporate culture, and structure

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Lumpkin and Dess (1996)

Conceptual Model of Entrepreneurship Approach

- Environmental factors; dynamic market environment, freedom in the markets, complexity, industry characteristics. - Organizational factors; organizational structure, organizational strategy, strategy formation process, business resources, organizational culture, strategic managerial characteristics of top management team.

Guth and Ginsberg (1990)

Corporate Entrepreneurship Field Model

- Environment; competitive environment, technological environment, socio-cultural environment, political environment, economic environment. - Strategic leadership; properties, values/beliefs, behaviors - Organization structure; strategies, processes, basic values, beliefs. - Organization performance; efficiency, efficiency, strategic partnership, business/stakeholder satisfaction.

Zahra (1991) Corporate Entrepreneurship Model

- External variables; dynamism, generosity, aggression. - Strategic variables; mission, competitive tactics. - Internal variables; values, infrastructure, organizational culture, processes, organizational structure.

Hornsby, Naffziger, Kuratko and Montagno (1993)

Interactive Model of the Corporate Entrepreneurship Process

- Organizational features; management support, autonomy, incentive practices, time appropriateness, organizational boundaries. - Individual characteristics; the tendency of risk taking, desire for autonomy, need for success, goal orientation.

THE RELATIONSHIP BETWEEN CORPORATE WISDOM AND CORPORATE ENTREPRENEURSHIP CW aims to bring about a fundamental change in the knowledge management approach in the business. Formal and informal, proactive knowledge production with an understanding of innovative and sustainable business management in which the participation in the production of knowledge in a democratic environment is enhanced, the leader's positive effect is increased, the learning and transfer of knowledge is established and the development of corporate culture is targeted to create value and make decisions more effective with CW. This understanding closely overlaps, with the phenomena of CE as innovation, proactivity, risk taking and competitiveness built on it. On the other hand, the components of CW and the external, strategic and internal elements that influence CE are also related to various sensitivities. For this reason, the relationship between the two concepts should be examined in two different dimensions. Examining the relationship between corporate wisdom and corporate entrepreneurship characteristics Innovativeness, which is one of the most important features of CE, includes all changes in existing products, sources, manufacturing, logistics or marketing, and business information production processes, or the implementation of ideas that are totally new, different from reflection or creativity. Innovativeness is examined with the dimensions as new business


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initiative, new business areas, product, service and process innovation, strategic renewal and self-renewal dimensions are examined:

- New Business Initiative can include the creation of autonomous or semi-autonomous units or entire firms, both in large corporations and in smaller firms. - New Business Areas, as stated by Zahra (1991), require that to operate in areas of major organizational activity rather than by creating a new unit or firm by redefining company products or services or by developing new markets. While the creation of a new business area is an innovation realized within the existing organizational structure, in the case of a new business initiative, a new organizational element is emerging which leads to a change in the organizational structure. - Product/Service and Process Innovation describes innovation in product and service by emphasizing innovation and development in technology and includes new product development, product improvement, new production methods and procedures by companies according to Schollhammer (1982). - Strategic Renewal - Guth and Ginsberg (1990), Zahra (1991), Sharma and Chrisman (1999) stated that the transformation of organizations through the renewal of basic ideas constituting the framework of organizations is the strategic renewal. - Self-renewal emphasizes strategic and organizational change according to Zahra (1993) and redefines the business concept, including large and comprehensive system changes to the company's reorganization and innovation (Erkocaoglan & Ozgen, 2009, pp.206-207).

If an evaluation is made in the context of innovation, CW understanding can be seen as an entire innovation in knowledge management. In order to autonomous structuring required for innovation, comprehensive system changes such as new business processes and innovative management Understanding, flexible knowledge production structure, creative thinking, diversified knowledge sources, use of implicit and informal knowledge are required. Respective these requirements are achieved through innovations in knowledge management thanks to CW. Risk Taking has taken place in the literature as a very important feature of CE concept. Risk as the probability of losing can be seen as the main feature of aggressive or proactive movements of existing firms in innovation activities. Risk taking for Lumpkin and Dess (1997) has pointed to a brave and daredevil mode of action involving rapid resource commitment for the quick pursuit of opportunities (Erkocaoglan & Ozgen, 2009, p.207). The entrepreneurial business derives its action style encourages itself when taking risks for opportunities from its robust and powerful knowledge system. In order for the movements to be realistic and robust, there are requirements for knowledge that are valuable and decision makers need. CW ensures the best management infrastructure to supply the necessary quality knowledge. Proactivity is linked to being a pioneer which stated by Lumpkin and Dess (1996) that it is the initiative to follow new opportunities and/or to enter new markets. According to Covin and Slevin (1991), proactivity is the initiative and execution of such activities before competitors, rather than following the competitions of organizations in key business areas such as the introduction of new products or services, the application of new technologies and administrative techniques (Erkocaoglan & Ozgen, 2009, p.207). CW Understanding

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aims to examine and improve current state by estimating future with organizational abilities possessed and with national moves. This ideal overlaps with the ideal of proactivity which aims the use of initiative and being a premise in CE. Aggressive Competitiveness is defined by Lumpkin and Dess (1996) as the firm's tendency to challenge its competitors. Covin and Slevin (1991) point out that the entrepreneurial stance reflects partly on the tendency to aggressively compete with the competitors in the sector in which the firm operates, and also see as a willingness and competitive aggressiveness as a management propensity in order to dominate their opponents’ competitive aggressiveness to show its competitors (Erkocaoglan & Ozgen, 2009, p.207). Aggressive competition for businesses creates a separate risk environment. Businesses need to be structurally capable of creating specific strategies and operating control mechanisms. In this context, the understanding of CW influences internal and external variables by creating a supreme basis needed from a source point of view. The relationship between components of corporate wisdom and corporate entrepreneurship Transformational Leadership is perceived that changing by the leader the needs of his audiences and their value judgments and achieves innovation to deliver the business to superior performance (Ceylan, Kesim & Eren, 2005, p.33). According to Bennis (1989), transformational leadership is the ability to authorize and empowerment audiences and transform the distributed authority and power to the action union to achieve vision (Ercetin, 2000, p.60). The transformational leadership includes forward-looking, charisma, inspiration, intellectual stimulation and individualized thought. The senior management values and talents from internal variables and leadership tactics from strategic variables of CE are components that are strongly related to the transformational leadership element. The relationship of transformational leadership between external environment is relatively weak. Corporate Democracy is a concept that includes elements of non-authoritarian leadership, the participation of small-scale employees in the decision-making process, and the extent to which employees are themselves governed by their own initiatives (Smith, 1976, p.276). Butcher and Clarke (2002) and Keer (2004) have emphasized that corporate democracy has democratic qualities such as responsibility in decision making, employee participation, equal participation, representation of the ruled, free knowledge sharing and self-organizing units (Cosan & Gülova, 2014, p.233). Corporate democracy has a positive impact on core values and beliefs in the context of belonging and cooperative knowledge management, while directly contributing to the flow of free knowledge and ideas to business practices and organizational processes. According to these definitions, corporate democracy has a strong relationship with internal and strategic variables and weaker with external variables of CE. Corporate Culture and Structure is the system of norms, behaviors, values, beliefs and habits that guide the behavior of people within an institution (Dinçer, 1992, p.271). It can be said that the institutional structure plays an important role in facilitating information flow and effective knowledge sharing in institutions. Cultures that focus on employee


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involvement and create effective channels of communication also provide an appropriate environment for the effectiveness of knowledge management systems (Çakar et al., 2010, p.78). According to Torbert (1991), libertarian structures that should be in corporate culture are the means of persistence in overcoming obstacles that limit organizational learning. Organizational culture is an important element that expands the discipline and freedom ratings of those who are on the way to wisdom (Bierly, Kessler & Christensen, 2000, p.612). As a parallel with CW in terms of CE, organizational culture is an internal and strategic element intend being creative, innovative and proactive in a liberty and strengthened communication structure. Knowledge Transfer is the ability of the institution to be wise and talented (beneficiaries of information) is made possible by effectively transferring knowledge and skills to the interests in units of the institution and to the stakeholders (Hays, 2007, p.24). Knowledge can be use by transferring from external sources and from new employees, processes, and studies within the enterprise and integrated with business strategies. In this respect, it can be said that transfer of knowledge is moderately related to internal, strategic and external elements in corporate entrepreneurship. Corporate Innovation and Change is possible with the knowledge management that adopts the innovation approach for required knowledge in the innovation process in order to increase the innovation and entrepreneurial performance of the business by revealing new opinions and ideas. According to Frappalo (2014), knowledge management is the strengthening of collective wisdom in order to increase awareness and innovation (Sungur, 2014, p.670). CW and corporate innovation are supportive and complementary concepts and there is a linear relationship between them. In this relationship, when one of the concepts is positioned centrally, the other is positioned as a parallel target. Institutional innovation and change is the most important element of CW understanding can be said to be strongly related to all the internal, strategic and external variables influencing CE. Learning Organization / Organizational Learning is to associate with each other, develop and expand of data, information, knowledge, and wisdom in the process of knowledge management (Bierly, Kessler & Christensen, 2000, p.597). The learning organization is the creation of an environment that combines organizational learning and knowledge management. The learning organization is the ability to impart organizational skills in adapting organizational behavior to the new knowledge. It is envisaged that there is a strong relationship with internal variables, a relatively moderate relationship with strategic variables, and a weak relationship with external variables in CE. Corporate Sustainability addresses not only the economic dimensions but also the social and environmental dimensions of business operations, is an enterprise that, according to Roca and Searcy (2012), it is the adoption of business strategies and activities that enable on the one hand to meet businesses and stakeholders’ current requirements, on the other hand, to protect the human and natural resources that the business will need in the future (Tum, 2014, p.59). Entrepreneurship in corporate sustainability requires long-term planning and is not very closely related to internal, strategic and external variables.

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Figure 5. The relationship between CW and CE

CONCLUSIONS The studies in the literature reveal the necessity of information management developed for CE to be innovative, proactive, risk manageable and adaptable to competition. In this direction, it has been seen that the CW elements aiming at the improvement of knowledge management constitute the knowledge management understanding that can provide the necessary infrastructure for CE. In other words, all the elements defined by CW, almost constitute key performance criteria for CE. The relationship between CW and CE in terms of properties and components has been considered with conceptual dimensions in this study. In general, it has been seen that all elements are directly related to each other in strong, moderate and weak levels and CW is an important element in preparing the ground for CE. These evaluations are shown in Figure 5. This study is based on a detailed literature review. In the light of qualitative evaluators, logical and theoretical conclusions were made by making a detailed examination of the concepts. However, it is very likely that the presented model can be developed and embodied by empirical and quantitative studies. It is expected that the theoretical assessments revealed by this study will contribute to the literature and shed light on new studies. REFERENCES

Bierly, P.E. III, Kessler, E.H., and Christensen, E.W. 2000. Organizational Learning, Knowledge and

Wisdom. Journal of Organizational Change Management 13(6), 595-618.


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Bulut, Ç., Fiş Ahmet, M., Aktan, B., and Yılmaz, S. 2008. Kurumsal Girişimcilik: Kavramsal Yapı Üzerine Bir Tartışma. Journal of Yasar University 3(10), 1389-1416.

Ceylan, A., Kesim, H., and Eren, Ş. 2005. Dönüşümcü Ve Etkileyici Liderlik İle Örgütsel Bağlılık Arasındaki İlişkilere Yönelik Bir Araştırma. Yönetim 16(51), 32-42.

Coşan, P.E., and Gülova, A.A. 2014. Örgütsel Demokrasi. Yönetim Ve Ekonomi 21(2), 231-248. Covin, J.G., and Slevin, D.P. 1991. A Conceptual Model of Entrepreneurship as Firm Behavior.

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CHANGES OF THE BUSINESS MODELS IN THE EUROPEAN LIBERALIZED MARKETS: AN EMPIRICAL OVERVIEW OF EVIDENCES FROM THE UTILITIES’ SECTOR Florina PÎNZARU1 Andreea MITAN2

Lucian Claudiu ANGHEL3

ABSTRACT The liberalization and deregulation of markets are concepts that have been the theoretical framework of the privatizations that have marked the transition of the ex-communist economies to their integration into the Single European Market. The transition from a monopoly market to an oligopoly market, and then to a competitive market, with multiple actors, is yet to be finalized in most of the CEU states, even if some of the liberalized markets, such as the air transport market and the railway transport market, can already be considered mature liberalized markets. Other markets, as the utilities’ one, are transforming as we speak. Our empirical paper presents the main transformations of business models in the utilities’ sector as a direct result of the liberalization process and of the constant opening to competition. KEYWORDS Utilities; liberalization; business models.

INTRODUCTION Public and private ownership in means of production and trade have cohabitated throughout the years, being not only a natural evolution, but also a subject to ideology. Looking back to history, one can notice that the biggest boom of privately owned companies was registered in the non-communist countries after the Second World War, along with the decolonizing phenomenon (Megginson & Netter, 2001). This marked a significant turning point, as the State has been considered until then, at least in Europe, as being responsible de jure and de facto to own and operate strategic services and resources, such as railroads transport, electricity and gas supply, postal services or strategic industrial assets in sectors such as the defense. The processes of deregulation and liberalization came as revolutionary phenomena, putting into question the State legitimacy as only player in some industries, and have been translated to Central and Eastern European countries after the fall of the communism. While deregulation refers to eliminating regulations that rule over the framework of certain economic activities, liberalization

1 National University of Political Studies and Public Administration, Faculty of Management, 30A Expozitiei Blvd., Sector 1, 012104, Bucharest, Romania, [email protected] . 2 National University of Political Studies and Public Administration, Faculty of Management, 30A Expozitiei Blvd., Sector 1, 012104, Bucharest, Romania, [email protected]. 3 National University of Political Studies and Public Administration, Faculty of Management, 30A Expozitiei Blvd., Sector 1, 012104, Bucharest, Romania, [email protected].


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concept sustains that the state should not be involved with economic activities except for the army, the justice and the main transport facilities. In the economic context, this translates into weakening entry or exit barriers (Rubsamen et al., 1989) and into allowing the price to be set by the market forces and eliminate specific regulatory constraints, especially on quantities. In most of the World Trade Organization member countries liberalization is understood as the opening of monopolistic markets to competition in services providing. Along with deregulation and liberalization, comes the process of privatization. The concept defines the voluntary sale of state-owned assets or enterprises to private economic agents (Megginson & Netter, 2001), mainly because of the critics on the so-called ‘unfair’ state monopoles taking advantage of captive markets and being less competitive. Especially after the fall of USSR and the reunification of Germany, many European states made room for private ownerships in previous monopolistic industries: water, gas, electricity, district thermal heating supply, telecommunications, financial services, waste collection and management, transports and infrastructure such as airlines, railways and highways etc. This change was obviously favored all over the world by the birth of regional economic unions, by the growing support for neo-liberal ideas and by the technological such as the one of the ITC. In this new paradigm, public utilities have shifted, in the EU countries, from monopoly market structures towards oligopolies or competitive markets, but nor liberalization, neither privatization equate with complete deregulation (Prosser, 1999). LIBERALIZATION, DEREGULATION, AND PRIVATIZATIONS IN THE EU’S UTILITIES At the EU level, the European Commission plays an important role in market surveillance, while the General Directorate for Competition monitors the proper competition laws application in the European states. The Treaty on the Functioning of the European Union (Part one: Principles-categories and areas of union competence, article 3) explicitly mentioned that the “Union shall have exclusive competence in […] the establishing of the competition rules necessary for the functioning of the internal market" in dealing with issues such as anti-competitive agreements and cartels, liberalization, mergers and state aid control, international activities. The European regulation is supposed to be implemented by member states and translated into the national legislation by National Regulatory Authorities (NRA's), whose autonomy and independence from political policies have varied across countries and geographies, influenced by a series of factors such as institutional empowerments, traditions in administration and market structure (Cohen & Thatcher, 2001). The process of market regulation has known different intensities, at least in the European Union, depending on the historical period and the sector (Cohen & Thatcher, 2001). The progressive liberalization of the utilities’ sector was accelerated by the internationalization of the large companies in this field which favored their extension in other markets. The liberalization of the markets opened, on one hand, the frontiers for new direct competitors and for competitors who provide substitution products. In some cases, even the government itself offered support to the new players, such as in the case of renewable

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energy providers. On the other hand, the internationalization of the large utility providers determines a global view on the consumer and a global view of the business, with some local flavors due to cultural and institutional aspects. Even if competition is almost a credo for the European Union when addressing specific issues of the utilities’ sector, liberalization is contested in many EU countries, both from the occidental and the eastern part, being holding responsible for the prices increases in the energy sector observed during the last years (Percebois, 2008). As a matter of fact, the same general idea of liberalization had very different effects in specific utilities’ industries. In the transport sector, it has led to an enormous competition marked by significant prices’ decreases for the end user (as in telecom or in the air transport cases), while in the energy sector it was (and it seems to continue to be) accompanied by significant increases in the prices. It is difficult to say if these two different effects are due to the liberalization itself or to specific conditions, such as the technological progress in telecom and in the air transport industry. We will present furthermore some evidence from the field.

LIBERALIZATION’S EFFECTS ON THE BUSINESS MODELS OF THE UTILITIES’ COMPANIES The liberalization process in the European utilities’ sector has been possible mainly because of the privatizations favored by the EU policies and it marked two simultaneous phenomena: opening of the markets for more players that, in some cases, completely transformed the markets (such as the low-cost companies in the air transport sector) and mergers and acquisitions between European operators (Percebois, 2008). One of the major shifts created by liberalization is one of customer changing mentalities: customers are more aware of their rights, place higher expectations on utilities’ companies and understand they can change their supplier, so they feel empowered (Rienznera & Testa, 2003). Consequently, companies in this sector became more interested in organizational change and in offering quality services, as these are how they can maximize client retention, keep churn rates at relatively low levels, and acquire customers from competition (Payne & Frow, 1997). Still, liberalization, at least in theory, is not the sole possibility for obtaining good quality services and lower prices, as monopolistic market structures could have the same results if enabled by operational economies of scale with low transaction costs (Winston, 1993). As the competition intensifies between the actors which are present in a market, the consumers gain increased negotiation power and become more pragmatic in the process of choosing the utility providers. The price becomes a very important criterion in evaluating the various offers but it remains just an aspect considered by household consumers, while it plays the most important role in the process for the non-household consumers (Drummond & Hanna, 2001). Apart from pricing, while evaluating the available offers, the household consumers rely on the feeling of safety they associate with a utility provider, on the reputation and on their experience with the provider. This proves that to create value for consumers, in the utility sector, a company needs the following (Pînzaru, 2012): strong and credible brands,


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integrated offers and high-quality customer relationship management (CRM) systems. Besides the mentioned changes in the marketing and commercial policies of companies, new ones are mandatory to meet current competitional challenges: efficiency and digitalization. One of the aspects visible in the case of most European utilities’ companies is their constant investment in branding, needed mainly because of the consumer driven structure of the liberalized markets. For instance, Gaz de France became GDF SUEZ after its merger with SUEZ and the new brand became ENGIE in 2015, announcing a real international ambition. Some of the world’s most valuable brands are in the utilities’ sector: Vodafone, Orange (telecom), British Airways and France Air (air transport), EON (energy) etc. One can notice that it is rather difficult to create a halo effect of quality of customers (Pînzaru, 2009; Kapferer, 2007) for the brands in the utilities sector, as we largely speak of products traditionally considered as natural and necessary goods for the daily lives of individuals or for the non-household consumers’ economic activities. The contracts signed in this domain are long-term, so they oblige the managers to ensure continuity in the values and promises that the company communicates. Companies in the utilities sector have the advantage of operating with diverse capabilities and resources which can be mixed in innovative ways to create differentiated offers. In telecom, the setting offers available only for a limited period became the norm for the commercial activities, along with the branding campaigns. In energy, water supply, and waste management sectors, household consumers and medium-sized enterprises are offered medium run subscriptions (1-2 years), while the larger business clients are offered customized subscriptions, based on their technical needs. Creating value for customers in utilities must be simultaneous with gaining profitability, therefore investments in sophisticated CRM systems is a must in the liberalized markets: they help reduce costs-to-serve and give to the companies a tool for direct interaction with the customers to increase their satisfaction and loyalty. One can notice that strong brands, complex offers, and effective CRM systems are expensive: combined with the constant pressure of the competition and of the need for profitability, the outcome of the liberalization seems today predictable: non-profitable companies disappear in a highly competitive environment marked by old and new companies such as low-cost operators (e.g. the former national Hungarian air transport company, Malev, in 2011), and big companies tend to become even bigger, by innovations and/or mergers and acquisitions. The liberalization of the utilities’ segment has been seen a solution to decrease prices for end-consumers, and this is true for IT&C and for air transport market. Nevertheless, prices have increased in energy for many European markets, showing some limits of the theory of liberalization itself. Therefore, companies are seeking for ways of becoming more efficient in this sector and one of the solutions to accomplish this goal seems to be digitalization (Graf, 2016). We can affirm that utilities’ companies need to become agile if they are not already – by rethinking organizational processes for alliances with start-ups (Wadin et al.,

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2017), by integrating Internet of Things in operations and offers, by setting up funds to invest in start-ups (Schaps, 2016) or by creating inside start-ups, such as Ajusto for ENGIE.

INSTEAD OF CONCLUSIONS: DISCUSSIONS Deregulation and liberalization have brought about many changes for the players in the utilities sector, more so for the ones in former oligopolistic markets, by putting pressure on companies’ efficiency and on all their business philosophy to adapt product offerings, prices, distribution, and communication strategies. Taken into the consideration the limits of our empirical paper, we still can conclude that the utilities’ European market is still transforming as a direct consequence of liberalization process. With the different speed at national levels, the utilities’ sector in Europe is becoming a commodity-like market, where consumers tend to act as on any other commodities’ markets, being influenced by prices, branding, and communication, offers, digitalization and companies’ customer relationship strategies. Beside the evidence presented in this paper, research is to be developed: to analyze if the utilities’ business models are like the ones of the commodities’ companies or if there are innovations to be considered for potential impact on academic literature in the future. Could intrapreneurship be a success story for such corporations in the present economic and social environment? Even if the utilities were until recently more the apanage of discussions on general economy’ effects, the constant transformation due to the liberalization process simultaneous to technology empowerment of customers will affect the overall business logic of the sector. Therefore, future research could be helpful to monitor and analyze those transformations. REFERENCES Cohen, D., and Thatcher, M. 2001. Utilities Reform in Europe, Huntington: Nova Sciences Publishers. Drummond, J., and Hanna, F. 2001. Selling Power. Marketing Energy Under Deregulation, Victoria:

Trafford Publishing. Graf, P. 2016. From Digitalization to “Disruption”? Service Networks in the German Energy Sector. In

Third ISA Forum of Sociology (July 10-14, 2016). Isaconf. Kapferer, J.N. 2007. The new strategic brand management: creating and sustaining brand equity long

term, London: Kogan Page Limited. Megginson, W.L., and Netter, J.M. 2003. History and methods of privatization. International

handbook on privatization, 25-40. Payne, A., and Frow, P. 1997. Relationship marketing: key issues for the utilities sector. Journal of

Marketing Management 13(5), 463-477. Percebois, J. 2008. Electricity liberalization in the European Union: balancing benefits and risks.

Energy Journal 29(1), 1-19. Prosser, T. 1999. Theorising utility regulation. The Modern Law Review 62(2), 196-217. Pînzaru, F. 2009. Manual de marketing: principii clasice și practici actuale eficiente, Bucharest:

C.H.Beck. Pînzaru, F. 2012. On innovation: a theoretical approach on the challenges of utilities marketing.

Economia. Seria Management 15(1), 165-172.


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Pînzaru, F., Anghel, L.C., and Dinu, M. 2014. The Impact of State Regulated Liberalization on Marketing Strategies in Romania. In C. Brătianu et al. (Eds.), Strategic Thinking in a Changing World (pp.137-153). Bucharest: Comunicare.ro.

Rienzner, R., and Testa, F. 2003. The captive consumer no longer exists. Creating customer loyalty to compete on the new deregulated markets of public utilities. Total Quality Management & Business Excellence 14(2), 171-187.

Rubsamen, V., et al. 1989. Deregulation and the state in comparative perspective: The case of telecommunications. Comparative Politics, Ph.D. Programs in Political Science, City University of New York, 105-120.

Schaps, K. 2016. Energy firms swoop on start-ups in billion-dollar technology race, Reuters – CNBC. Available online: http://www.cnbc.com/2016/12/02/reuters-america-energy-firms-swoop-on-startups-in-billion-dollar-technology-race.html.

Wadin, J. L., Ahlgren, K., and Bengtsson, L. 2017. Joint business model innovation for sustainable transformation of industries–A large multinational utility in alliance with a small solar energy company. Journal of Cleaner Production. Available online: http://www.sciencedirect.com/science/article/pii/S0959652617306042.

Winston, C. 1993. Economic deregulation: Days of reckoning for microeconomists. Journal of economic literature 31(3), 1263-1289.

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DEVELOPING TRUST IN A RETAIL BRAND WEBSITE Rareș MOCANU1

ABSTRACT If trust is a critical strategic asset, then marketers in this internet and digital devices era need to understand how to build trust in a decentralized media environment in which consumer choice is almost infinite. Consumers today have more places and ways to shop than ever. And they have increasingly shorter attention spans. Whether it’s a long-time customer or a first-time encounter, establishing and maintaining trust is crucial to the long-term success of your retail business. Additionally, the tactics used by digital native brands in building and maintaining trust offer models for other companies attempting to connect with consumers in new channels and in unique ways. This study examines online brand trust and its influencing factors in the specific context of online retail brands analyzing research and academic literature on online brand trust drivers from companies such as Amazon, Airbnb, Uber, Everlane, eBay, and Zappos which have employed one or more of these strategies to build trust in a digital economy, providing a guide for how brands that were not nurtured in digital first can build trust.

KEYWORDS Online Brand Trust; retail; online experience; usability; content management; aesthetics; CRM.

INTRODUCTION Technology has revolutionized the way things operate and what customers expect from retailers. Shopping in-store is still an experience shoppers love, but with technology and the immediate nature of the Internet, the modern customer tends to expect a better shopping experience inside and outside the store. This understanding is causing retailers to search for new ways to engage these consumers across all channels to improve engagement and boost profits. However necessary it may be, going digital has its challenges for retailers. Mobile and smartphones have significantly altered the shopping experience for the consumer over the last few years. Shopping in-store is still an experience shopper’s love, nevertheless improvements in online retail capabilities have resulted in customers welcoming the multichannel experience. Buying behaviour has evolved into a mix of in-store and online - the modern customer tends to expect a better shopping experience inside and outside the store. A recent study by Barclays revealed that mobile-commerce will be worth 61 billion Euro by 2024, yet 70% of retailers lack mobile sites or apps (Economist, 2016). Shoppers want what they want, when and where they want it. Retailers and brands have to accommodate today’s multichannel shopper to remain pertinent to today's customers. The digital experience that comes with shopping is a core aspect of the

1 National School of Political Studies and Public Administration, Faculty of Management, 30A Expozitiei, Bucharest, Romania, [email protected]


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brand experience for today customer who can easily go online and choose what they want right from their living rooms, therefore the digital experience is no longer just about the brand, but how customers connect with it as well. Online shopping has several benefits over traditional shopping – today customer can buy goods and services with a wide range of categories, online sellers deliver the goods to the buyer’s home, customers can order as many items as they can afford. Moreover, online store is open 24 hours a day, 7 days a week and 365 days a year, so customers who want to purchase online have no need to hurry or worry about searching parking spaces at any shopping mall. However, B2C e-commerce has also shown to be associated with a myriad of factors hindering adoption and usage by private customers. Such factors include concerns regarding security and privacy, the unfamiliarity of some online services, lack of direct interaction with products, salespeople and fellow shoppers and the generally low credibility of online information. These factors were collectively defined as “trust issues”, as they refer to a purchase decision customers have to make in a situation of uncertainty and risk. The importance role of trust in many social and economic interactions involving uncertainty and dependency is one of the crucial factors that influence a successful e-commerce implementation. Lack of trust has been repeatedly identified as one of the most formidable barriers for people to engage in e-commerce activities and hence building and sustaining consumer trust in the virtual environment is vital for a company to succeed in the digital age (Anon, 2011). The techniques used by brands to build trust in the pre-digital age are far less salient to contemporary users, who are savvier, more skeptical, and more cynical about marketing messages - in “traditional” business transactions, buyers can interact with sellers and physically touch the products, whereas in most online shops consumers are unable to interact personally with the online retailers and can only rely on the photos and descriptions provided. Today, consumers require more than slogans and a persuasive pitch. Delivering on the promise a brand makes has always been essential, but in today's consumer culture fueled by social media, a discrepancy between promise and product can be instantly fatal to a brand. The emergence of digital platforms has expanded the opportunity for brands to build trust equity. Therefore, the nature of B2C e-commerce compared with the traditional face-to-face market leads to transaction risks relating to the uncertainty of the online retailer’s identity and product quality. It is important to reduce the barriers to purchase, in other words, it is important for the online vendors to develop a trusting relationship in order to maintain consumer loyalty (Barraclough, 2007). The present paper aims to analyze and review the specific factors related to customers trust in e-commerce websites and to provide insights into purchase habits that can be used to improve the overall customer experience and brand trust in online acquisitions.

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RETAIL BRAND TRUST AND USABILITY IN E-COMMERCE Nowadays, it isn’t quite so easy to keep shoppers’ attention and make them come back week after week to check out new products. In the headlong rush retailers face when developing sophisticated e-commerce websites and viral social media campaigns, it seems that establishing the traditional three Rs of retailing has fallen by the wayside. Give customers the “Right item at the Right price at the Right time” and they will come back time and time again. Huge retail businesses were built on ensuring that no key items in their assortments were ever out of stock. These items, known as the bread and butter or loss leaders of retailers for years, frequently became the foundations for larger purchases generated during a shopping trip by the customer. Once the customer notices that a given item is never out of stock, he or she will continue to return to the store, which can then lead to a relationship with sales associates, who could, in turn, help the customer buy additional items (Bellman, Lohse & Johnson, 1999). This whole cycle begins with the “never out” item – a customer will keep returning to a store because he or she knows a specific item will always be in-stock. However, this has undergone substantial changes with the development of mobile platforms where consumers expect their retail outlets to provide them with instant, anytime, anywhere support, and they expect to have the ability to comparison shop and search for outlets, brands, and pricing no matter where they are. Mobile development has been steadily growing, both in revenues and jobs created. Mobile digital media time on the market is now significantly higher at 51% compared to a desktop (42%) If retailers are not able to reach their audience through mobile search or display, or they are not providing a satisfactory mobile experience, they will miss out compared to competitors who are (Betts, et al. 2004). The importance of mobile is not how many transactions are completed on a mobile phone. The importance is how the consumer is interacting, making decisions, checking information, checking stock, finding your stores, communicating with you through the smartphone. The mobile phone is rapidly becoming a crucial shopping agent as shoppers demand more personalization. New York-based social media company Stylinity is focused on smartphone technology that makes it easy for consumers to tag apparel in their “selfies” and then share those photos with friends via social media. “Everyone knows that consumers are increasingly using mobile phones in store, says Stylinity CEO Tadd Spering 2012 (Roy, Dewitt & Aubert, 2001). They are checking prices and getting product information, yes, but also seeking out trusted advice from friends. Ultimately, shopping on a mobile device will be distinct from any other shopping experience” (Cardholm, Karlsson & Karvonen, 2000). Therefore, we can conclude that the usability aspect of an online seller’s mobile/website is one of the important aspects of generating trust and especially when it refers to certain features which make using the site or app effortless, fast and logical, thus either directly or indirectly creating an impression among the users that the seller is professional, capable


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and trustworthy (Chen & Dibbs, 2010; Choi & Au, 2011). Studies into user on-line behavior recommend clear, consistent navigation to improve both sales and site traffic (Christie & Kim, 2010). Navigation enhances trustworthiness as it conveys respect for customers by showing that the company is committed to providing a clear, fast service for the “time-deprived” consumer (Bellman, Lohse & Johnson, 1999). To promote ease of use certain conventions are suggested such as ways of finding different types of information and accomplishing particular tasks, e.g. groups of related items or in sequences of steps (Egger, 2001). These conventions make the consumer feel comfortable by making the situation seem normal and familiar. Familiarity, in turn, through situational normality, increases trust (Warren, 2010). INFORMATION CONTENT If there was ever an institution that has proven historically powerful, long-lived and adaptable, it is the store. As shopkeepers and shops have been around for centuries, it’s a pretty safe bet, mobile apps or not, that stores will still be around in very familiar forms for at least the next few decades. When examining the reasons consumers shop online from this year Total Retail survey done by PwC (PwC’s Annual Global Total Retail Consumer Survey February 2017) just three reasons are exclusive for online shops and not replicable by physical stores (“I can shop 24/7 online”; "a much faster access to reviews and a better image of the product"; “No need to travel to a physical store”). All other factors can be achieved by a physical store, as well. Therefore, retail sites should ensure there is sufficient information on the company, products, terms and conditions, privacy, delivery and contact details, and that it is clearly written to put the consumer’s mind at ease also intuitive and one click away. The provision of comprehensive, current, personalized, and community-specific information, which is sufficient in both depth and width, is crucial in gaining trust (Economist, 2016). Web design guidelines emphasize the importance of well-written information, and the absence of typographic errors and more importantly jargon-free content to ensure users are not deterred from the site nor discouraged from bookmarking n (Kim & Lim, 2001). Expressed in bureaucratic and legalistic jargon, privacy policies are often buried deep in the website, not to be found and understood by the user (Fogg, 2001). Yet, explaining why information is gathered and used, and whether consumers’ anonymity is at risk, promotes trust (Economist, 2008; Jarvenpaa, Tractinsky & Vitale, 1999). The importance of this is demonstrated in Keen’s description of privacy policies as a “matter of dialog and explanation – shared understanding between your company and its customers” (Economist, 2008). A complete, comprehensible privacy policy conveys to consumers that the seller conforms to a code of ethics and has nothing to hide, in turn increasing the likelihood of an exchange of personal information. Whereas detailed, technical explanations of security decrease the level of consumer trust, a clear, concise explanation of the security measures promotes trust (Egger, 2001). It is important to explain encryption methods and other techniques with which the users are familiar, perhaps through the use of metaphors and textual information, and provide clear visibility of the security techniques employed (Jarvenpaa, Tractinsky & Vitale, 1999). The emphasis

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is on providing convincing, nontechnical descriptions of the technical security solutions, thereby showing consumers that security has been “taken care of” and assuring them that the site is trustworthy. The existence of a “FAQ” section has similarly been claimed to promote trust (Ganguly, Dash & Cyr, 2009; Vigneron & Johnson, 1999). Firstly, this section is perceived as evidence that companies are taking an interest in assuring consumers’ well-being (Chen, 2008). Secondly, it is believed that some consumers use it as an indication of size, which, in turn, has been shown to be positively associated with perceived trustworthiness (Chen, 2008; Ruparelia, White & Hughes, 2010). Providing information about the company, its history, founders, and employees have been suggested to promote credibility and trust (Jarvenpaa, Tractinsky & Vitale, 1999; Vigneron & Johnson, 1999). Not only does providing company information facilitate familiarization with the company, but it also assures the consumer that the e-retailer is a real company as opposed to an unreliable firm, thereby enhancing the possibility of relationship building between the consumer and the retailer. Complete, accurate product information also establishes credibility and trust in an e-retailer (Vigneron & Johnson, 1999). Descriptive, convincing information projects passion about, and interest and knowledge in, the seller’s subject area, thereby communicating expertise. However, for product information to be “good” and trustworthy, it must be correct and up to date. Finally, the provision of contact details encourages trust as it provides a link to the company thus showing the customer that the company is legitimate with a physical location (Passariello & Mangalindan, 2008). Providing an e-mail address, toll-free help lines and a physical address may help to establish a relationship with the customer, which, in turn, promotes not only trust but also long-term retention (Kim & Lim, 2001).

AESTHETICS Digital has really disrupted this business tremendously as shoppers are more purposeful than ever with less impulsive purchasing, the consumers do not go out to just window shop because smartphones have enabled them to find exactly what they are looking to purchase (Gefen, Karahanna & Straub, 2003). The days of window shopping discovery that resulted in impulse buy are gone Trust building is strongly affected by the users’ first impressions of a website (Keen, 2000). As the point of “first look” at the home page plays a pivotal role in gaining and holding the consumer's attention. Having a user-friendly e-commerce website has become essential in order for businesses to thrive. Increasing website traffic in the digital age is a common challenge for retailers, but making the right first impression – and maintaining the experience for repeat visitors – can go a long way in remaining competitive and outpacing the competition. Users need to quickly and effectively navigate through a site to find what they’re looking for. A convincing website lures customers in, while messy, unorganized pages drive them away (Geissler, 2001; Passariello & Mangalindan, 2008). An effective site should also allow shoppers to take immediate steps to get all the product information they need. Adding essential communication tools, such as providing visitors with chat options, allowing direct communication with sales associates who can help with the technical


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description, or simply answering any purchase related questions that would arise as if transactions were made face –to face at the in-store counter. In addition, a sloppy site implies a disregard for potential customers. Following the “KISS” (Keep It Simple and Stupid) principle then the best web pages are “clean”, “clear”, “relatively simple” and “well laid-out” contributing to the development of trust (Warren, 2010). As consumers gain experience in browsing, they become accustomed to certain features. Consistency is important in effective web design and refers to the consistent placing of logos, repeated text, buttons, graphics and navigation tools throughout the website. Consistency should also be employed in the product descriptions and in the chosen color, and text font and size. It is also a sign of competence and consideration, as it enables users quickly to evaluate the usefulness of the site and match their expectations, while also giving them a sense of control and improving situational normality (Egger, 2001; Lohse & Spiller, 1999). Since consumers often visit a site after browsing several sites, and since reading from a screen is more difficult and slow than reading from the printed page, web pages should be “spacious”. Users get frustrated by, and dislike crammed web pages that offer too much information on one page, or have too many graphics or banner ads (Martin & Camarero, 2008). Simultaneously, the use of space enables the user quickly and effortlessly to obtain an overview of the site’s content, thereby facilitating navigation. As the Internet is primarily information-based, information should be displayed promptly and clearly. Following the KISS principle, the text should be available immediately, whilst waiting for the graphics to load. It should be clear, strong, and stand out distinctly from the background. For this reason, light colors are ill-suited as text colors. Professionals prefer fonts such as Arial, as these are available on almost all PCs. Although the impact of the text may be greatest in terms of satisfaction, illegible policies do not encourage information sharing or promote trust. Illegibility is also considered to be a sign of amateurism, which, in turn, has been claimed to reduce trustworthiness (Muniz & O’Guinn, 2001).

CONSUMER RELATIONSHIP MANAGEMENT Online retailers should learn to conform and continuously adopt and promote new technologies to be in step with consumer trends. Utilizing social media platforms to promote brand awareness and reach the consumer in real-time, taking advantage of the rise of mobile technology in order to provide instant ordering access, using analytics to predict key trends, and having an updated, smart and savvy e-commerce website all contribute tremendously in helping a brand expand, survive, and thrive in this ever-evolving digital age. With fierce competition online, the price isn’t your competing factor anymore, everything now revolves around creating a great and memorable customer experience, which is actually defined by the customer, not the retailer themselves. Whether it’s the ability to find a product effortlessly or having multiple touch points for customer service, your customer’s experience is becoming the most important part of your business.

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Customer relationship management should be linked to interface effects in creating a channel for interactive direct communication both in the virtual environment and in the real world for consumers. This is important for almost any retail brand as it is known that timely communication and point of purchase personalization is a factor in generating trust (Martin & Camarero, 2008). When we talk about CRM, it’s a conversation about data. With digital marketing and commerce, CRM has become synonymous with visibility for your customers, shoppers, website browsers. For now, we’re just going to narrow it down to the following topics that a strong CRM strategy can help you plan for: Loyalty; Single View of the Customer; Segmentation; Lifetime Value of a Customer; High-Value Customers vs. Low Value. Many on-line retailers have some form of loyalty program. It can be as simple as “press this box” and you enter in our VIP customer program! Or as complex as a points calculation model. What are the interesting and important drawbacks here, is that merchants don’t just interact with their customers in-store or online anymore, it’s everywhere? The channels we have to interact with our customers, are too many to count. For merchants to build a strong retention tracking and incentivize on it properly, they need to track the different ways they interact with their customers (Roy & O. Aubert, 2001; Economist, 2008). Another example of the importance of CRM in building trust is the fact that many merchants, don’t feel sophisticated enough to do segmentation. Customer segmentation doesn’t have to be hard, or incredibly difficult. In fact, segmentation can be incredibly basic, and of course to the opposite end of the spectrum more complex. You can build product recommendations based on specific customers or you can send more targeted marketing messages, and manage your budget more efficiently. This means that there’s an email that is sent to a specific set of customers who bought from you before or have always liked a certain brand etc. Then from there you can start to branch out and try more involved segmentation ideas like purchasing a certain brand; only buy when things are discounted; seasonality; gifts products; special offers and occasion. On-line retailers use the word “value” all the time, but they rarely focus on it. Most merchants only equate value to money. If you start tracking people beyond just how much is my customer spending? The true value of that customer and the data you have on them can help to drive many other strategies. For example: How often do people engage to your products or how often do your customers engage on social; frequency and recency; influence on other customers. CONCLUSIONS Consumer’s trust concerns appear to be related to a number of factors, including security, privacy, unfamiliarity, distance in time and space and unreliable information. As prospective customers of a website need to have enough trust before placing an order, it is essential that online merchants address trust concerns by means of the information they provide on their website. Instead of focusing on trust in terms of technological solutions to increase security, we will adopt a global, user-centered approach that focuses on user’s initial perception of an online merchant’s trustworthiness. This approach is described in greater detail in the next section


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Building trust in a retail brand has become a far more challenging endeavor than it was a generation ago. Even as consumers say they are increasingly distrustful of institutional structures, they are engaged in transactions that require a high level of trust equity. Traditional trust-building mechanisms, such as marketing on high frequency and reach vehicles (such as TV) and third party endorsements, hold less sway with savvier consumers who are skeptical of the claims brands make. As a salve against user distrust, brands such as Airbnb, Everlane, and Zappos have employed newer methods to build trust infrastructures. Embracing consumer reviews, providing radical transparency, and creating an optimal user experience are all tactics these companies have used to build and maintain trust. However, these methods are not only relegated to new online retailers. Traditional organizations can also emulate these tactics to enhance consumer trust. Together, these tactics point to a very clear pathway for companies to harness their brand capabilities and build trust in a digital ecosystem. They must shift from being passive platforms or players and - carefully defining what they stand for through what they say, do, and enable - become more active participants in the behaviors and conversations that generate trust. REFERENCES Anon 2011. The Innovate Payments 3-D Secure Hosted MPI is Priced to Minimize Upfront Costs.

Available online: www.innovatepayments.com. Barraclough, E. 2007. Managing Intellectual Property, April, 168, 42-43. Bellman, S., Lohse, G.L. and Johnson, E.J. 1999. Predictors of online buying behavior, Communications

of the ACM 42, 32-38. Betts, K., et al. 2004. The purse-party blues. Time 164(5), 68-70. Cardholm, L., Karlsson, S., and Karvonen, K. 2000. Trusted E-Business, User study 2000, Helsinki

University of Technology. Chen, C.H. 2008. Establishment of Trust – The Concepts and Practical Implementations in B2C

Ecommerce, Ph.D. Thesis, Royal Holloway, University of London. Chen, J., and Dibbs, S. 2010. Consumer trust in the online retail context: exploring the antecedents

and consequences. Psychology & Marketing 27(4), 323-346. Choi, D., and Au, N. 2011. A model of online trust for travel products. International Journal of Services

Technology & Management 15(1), 132-146. Christie, J., and Kim, S. 2010. Influences of retail brand trust, off-line patronage, clothing involvement

and website quality on online apparel shopping intention. International Journal of Consumer Studies 34(6), 627-637.

Egger, F.N. 2001. Affective Design of E-Commerce User Interfaces: How to Maximize Perceived Trustworthiness. In M. Helander, M. Khalid, and H.M. Tham (eds.), Proceedings of CAHD2001: Conference on Affective Human Factors Design, Singapore, June 27-29 (pp. 317-324).

Fogg, B.J., et al. 2001. What Makes Web Sites Credible? A Report on a Large Quantitative Study. In CHI2001 Proceedings, Conference on Human Factors in Computing Systems, Seattle, 31 March.

Ganguly, B., Dash, S.B., and Cyr, D. 2009. Website characteristics, trust and purchase intention in online stores: – an empirical study in the Indian context. Journal of Information Science and Technology 6(2), 22-44.

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Gefen, D., Karahanna, E., and Straub, D.W. 2003. Trust and TAM in online shopping: an integrated model. MIS Quarterly 27(1), 51-90.

Geissler, G.L. 2001. Building customer relationships online: the Web site designer’s perspective. Journal of Consumer Marketing 18, 488-502.

Jarvenpaa, S.L., Tractinsky, N., and Vitale, M. 1999. Consumer trust in an Internet store. Information Technology and Management 1(12), 45-71.

Keen, P. 2000. Designing Privacy for your e-business. PC Magazine. Available online: www.ZDNet.com.au.

Kim, S.Y., and Lim, Y.J. 2001. Consumers perceived importance of and satisfaction with Internet shopping. Electronic Markets 11, 148-154.

Lohse, G.L., and Spiller, P. 1999. Internet store retail design: how the user interface influences store traffic and sales. Journal of Computer-Mediated Communication 5(2).

Martin, S.S., and Camarero, C. 2008. Consumer trust to a web site: moderating effect of attitudes toward online shopping. CyberPsychology & Behavior 11(5), 549-554.

Muniz, A.M., and O’Guinn, T.C. 2001. Brand community. Journal of Consumer Research 27(4), 412-432.

Passariello, C., and Mangalindan, M. 2008. Ebay fined over selling counterfeits. Wall Street Journal – Eastern Edition 252(1), 2-5.

Roy, M., Dewitt, O., and Aubert, B.A. 2001. The impact of interface usability on trust in Web retailers. Internet Research 11(5), 388-398.

Ruparelia, N., White, L., and Hughes, K. 2010. Drivers of brand trust in internet retailing. Journal of Product & Brand Management 19(4), 250-260.

Economist. 2008. Hand bagged, Vol. 387, No. 8585, p. 76. Economist 2016. The World in 2016, 29th edition. Vigneron, F., and Johnson, L.W. 1999. A review and a conceptual framework of prestige-seeking

consumer behavior. Academy of Marketing Science Review 99(1), 1-15. Warren, M. 2010. By invitation only. Profit 29(1), 11-12.


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LOGISTICS INFORMATION SYSTEM AS AN INDEPENDENT BUSINESS: LIS AS A SERVICE Florin Codrut NEMTANU1 Mădălina PAVEL2 Dan GASPAR3 Andreea MOCANU4

ABSTRACT Logistics Information System or Technology (LIS or LIT) is one of the most important components of logistics. Its main role is to reduce the costs and the time of logistics. The authors present a research on LIT highlighting the main trend in the development of new approaches and solutions for LIT. Another important result of the paper is the scenarios for different approaches of implementation of LIT in a company. Internet of Things could be considered as a good solution to accelerate the implementation of intelligent LIT/LIS base on IoT technologies. KEYWORDS General Logistics Information Technology (LIT); Internal Logistics Information Technology; External Logistics Information Technology; Customer Integration; IoT in logistics.

OVERVIEW OF LOGISTICS INFORMATION TECHNOLOGY (LIT) Logistics and, the complex form of it, supply chain management are characterized by two important flows: material flow and information flow. Information flow is the key to the success in terms of connecting the departments of the company as well as different companies to provide an integrated logistics service. Research regarding supply chain (Yu, Yan & Edwin Cheng, 2001) indicates that firm success is strongly dependent on how the information is shared throughout the entire company. One study actually revealed that over 87% of firms representatives believed that a tool for information exchange plays a vital role in a firm`s supply chain management strategy (Moberg et al., 2002). One of the most acknowledged LIT benefits is the fact that it improves the interaction between supply chain partners, thereby improving the overall effectiveness of the supply

1 Politehnica University of Bucharest, Faculty of Transport, 313 Splaiul Independenței, 060042, Sector 6, Bucharest, Romania; [email protected]. 2 National University of Political Studies and Public Administration, Faculty of Management, 30A Expoziției Blvd., Sector 1, 012104, Bucharest, Romania; [email protected]. 3 National University of Political Studies and Public Administration, Faculty of Management, 30A Expoziției Blvd., Sector 1, 012104, Bucharest, Romania; [email protected]. 4 National University of Political Studies and Public Administration, Faculty of Management, 30A Expoziției Blvd., Sector 1, 012104, Bucharest, Romania; [email protected].

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chain. The information technology system is the support system which will support the development of a reliable LIS/LIT. Several studies on the integration of supply chain have identified internal and external supply chain dimensions as a critical element to achieve a level of performance based on competitive advantage, but also, they investigated the impact of these integrations on technology/ information exchange. These studies have shown that enhanced profitability and improved competitiveness can be achieved when integration is facilitated by information exchange. Examining LIT as two separate dimensions, internal and external, provides a unique method for evaluating the relationship between LIT and customer integration and customer service performance. Another important aspect of this investigation is the analysis of the establishment of a new company which can manage the information and the technical system which is supporting LIT. The solution proposed by the authors is to use IoT technologies to create this support system of LIT. This topic was described by one of the authors of previous papers and research and it was developed using cloud technology (Nemtanu, Schlingensiepen & Buretea, 2015). Internet of Things is a new concept and a new set of technologies which are able to develop support systems for various types of information system and LIT/LIS is a good example of applying this (Nemtanu & Pînzaru, 2016). IoT has the main advantage to facilitate the development of information support systems and on another hand to develop new businesses. The paper proposes also the approach to establishing a new company which will be in charge with the IoT infrastructure as well as the applications developed on this infrastructure (in this case applications related to logistics). INTERNAL LOGISTICS INFORMATION TECHNOLOGY Internal LIT includes technologies that facilitate interdepartmental communication, information exchange, and functional processes. This includes a firm`s database and transactions applications which are often characterized by the degree of integration, data accuracy, timeliness and quality of data. As examples for Internal Logistics Information Technology, we can note Enterprise Resource Planning (ERP) system, which facilitates financial, accounting, fulfillment and manufacturing integration, Warehouse Management System (WMS) and Transportation Management System (TMS).


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LIS

Procurement Operation Distribution

Figure 1. Internal LIS

For a better understanding of why Internal Logistics Information is important here are some typical benefits an ERP include: inventory reduction, decreased data processing time and increased customer responsiveness. EXTERNAL LOGISTICS INFORMATION TECHNOLOGY External LIT characterizes those technologies that facilitate communication and information exchange between supply chain partners. These technologies are usually applications that facilitate in an effective way the exchange of information, analysis, and reporting between supply chain partners (Closs & Savitskie, 2003). As examples of External LIT, we can note Electronic Data Interchange (EDI) and the well-known standard of United Nations EDIFACT and the Internet. These facilitate the exchange of information. Also, we can note as external LIT those technologies that can facilitate strategic (long term and large area) and tactical information (short term and short area) exchange, but also coordination with customers and suppliers (Closs & Savitskie, 2003). The main advantage of using EDIFACT is to interface systems with the different data format and to create a common interchange platform for all systems involved (Janner et al., 2006).

LIS LIS

Supplier Procurement Operation Distribution Customer

LIS

Figure 2. Information flows in Logistics (LIS)

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Every participant of the supply chain has a logistics information system and this system will be connected with all other parts of the chain, the main challenge is to provide interoperable solutions between the different implementation of LIS. Firms that successfully employ information sharing initiatives often develop a stronger supplier-manufacturer relationship. Also, as benefits these technologies can increase responsiveness, cost reduction, but, most important, can reduce uncertainty. As one can see the success of the supply chain is dependent on information exchange effectiveness and efficiency. CUSTOMER INTEGRATION LIS or LIT is connected with all components of logistics chain and one important component is the customer and the integration of the customer in a flow of information is requested by the objectives of logistics: time and cost reduction. Customer integration is identified as one of the most important competency in order to achieve high performance regarding logistics. This translates in building lasting relationships with customers, fact that add value to the process and, in the end, to the firm. Because of this management must identify what are the customers’ expectations, requirements, and needs and then implement solutions in the supply chain process that meet or ideally exceed those demands. This is what customers’ integration stands for. One way to effectively identify customer expectations and to meet them is by collecting, analyzing and sharing information, ideally in real time (Closs & Savitskie, 2003). The success of customer integration relies on the firm`s ability to identify unique customer supply chain requirements and then design, refine and offer supply chain strategies to meets the unique requirements. By focusing on the unique aspect of the customer demands a firm can differentiate itself from its competitors (Closs & Savitskie, 2003). CUSTOMER SERVICE PERFORMANCE The overall performance of a firm includes a various number of factors. One of them is the ability to profitably satisfy customers on a long term, by acknowledge and meet the customers specified requirements (Closs & Savitskie, 2003). Customer service performance includes order related concerns, delivery rate, but also responsiveness, speed order fill capability, delivery time and customer satisfaction. To increase the performance of the system is important to collect real-time information about the product as well as real-time information about the needs and the behavior of the customer. This aspect could be treat by support system based on IoT technologies. The customer has the access to Internet and the producer will develop an intelligent infrastructure (IoT) which is able to provide information, in real time, to the customer.


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The overall performance of a company is generated broadly by how they handle customer service. In order to have performance regarding this aspect, a firm must integrate the customer within the business model. For this to happen one needs to collect, analyze and share information about the customer, ideally, in real time. Because of this business need to share information within departments and partners very quickly and in a secure way. Logistics Information Technology allows firms to do that. By using either Internal LIT or External LIT, companies are creating a business model that evolves around the needs and demands of the customer and because of this we can conclude that customer integration can be a consequence of LIT. INTERNET OF THINGS AND INTELLIGENT TECHNOLOGY The main challenge in an information system is the collection of data and to find the best sources for reliable data. In logistics, the collection of data started with special labels and scanner and now there is a large implementation of RFID to collect data in an automated manner. An important step in implementing new and intelligent technologies was the implementation of cloud computing based on the Internet and the communication networks and they were used to provide different services for clients (Infrastructure as a Service, Platform as a Service and Software as a Service). One of the authors has already done some investigation related to the cloudification of different services and the logistics could be a good example for this (Nemtanu, Moise, Beldescu & Iordache, 2013). Based on this model the application of IoT could generate advanced services and the main approach in this paper is to provide services for LIT/LIS or LIT as a Service (Iordache et al., 2013). Internet of Things is a network of various devices which can be connected via the Internet and which is ready to provide services like an infrastructure (intelligent infrastructure) for various applications.

Sensor and Device Layer

Interconnection Layer

INTERNET

Application Layer

User Layer

Figure 3. The architecture of IoT

The sensor and device layer is in contact with the processes and products and is able to collect real-time information about them and to send this information to the next layer and, finally, to the user/customer.

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The IoT has as main role the collection of information from the material flow in a logistics system and to generate a virtual flow (based on real-time information). This virtual flow could be considered as an independent component of the logistics chain and a business could be established to manage the support infrastructure as well as the virtual logistics system.



Material Flow

Figure 4. Virtual Logistics and Logistics

The virtual logistics could be considered as a parallel system with logistics and the main role is to collect, process and distribute real-time information to reduce cost and time spent in logistics processes and activities. IoT INTERVENTION SCENARIO The authors propose the application of IoT solution on the scenario with internal and external LIT/LIS. For this reason, the model of the internal and external LIT is shown in the Figure 5.

Figure 5. Scenario with internal and external LIT/LIS

The supplier delivers the products to the warehouse and the information will be exchanged between the supplier and the company based on external LIT and EDI implementation


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(number 1 in Figure 5). The Warehouse reports in real time to the Web Administrative personnel the status of the stock and the new arrivals and the Web Administrative sends a report of online demand in real time to the Warehouse, through the WMS System (2). The Web Administrative personnel informs in real time the Customer about the changes through the website and the Customer sends valuable information about future purchases in real time by adding products to the Wishlist, through the ERP System (3). The Customers send in real time the order details to the Customer Care center and the Customer Care center informs in real time the Customers about product availability, through the ERP System (4). Customer Care informs in real time the Warehouse about the order and the Warehouse informs in real time the Customer Care about product availability, through WMS System (5). When they are ready to be transported, the Warehouse hands over the products to the Transportation team and the Transportation team informs the Warehouse if the product was successfully delivered or it will be returned to Warehouse, through the TMS System (6). The products delivered to the Customers by Transportation can be tracked online in real time and the Customers can announce Transportation about any modifications regarding the time and/ or location of the delivery (7). The Customers informs immediately the Customer Care team in case of products return need for various reasons which are detailed in an online form and Customer Care team can inform the Customer when the Transportation team is available to pick up the product (8). Customer Care sees in real time the space availability for the returned products in the Warehouse (9). The Warehouse sees in real time when the Transportation is available to pick up the products from the Customer (10). The Transportation announces the Customer when it can take over the products and the Customers can announce Transportation about any modifications regarding the time and/ or location of the delivery (11). The Transportation delivers the products to the Service (12). The Service contacts the Transportation to deliver the product to the customer and the Customer can see in real time where the product is (13).

Figure 6. IoT intervention on external + internal LIT/LIS

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The intervention has the main role the development of an IoT network to collect and distribute real-time information without any human action. In figure 6 the intelligent things (T1 to T6) are able to collect information from specific logistics processes and activities and also to distribute information locally or over the Internet. As an example, the T1 device is able to send information about the product which has to be provided by the supplier. T1 collects real-time information about the product (location, state, external conditions etc.) and will send this information over the IoT network to the company (in this scenario, warehouse of the company). All intelligent things T are connected to the IoT-I (Internet of Things – Infrastructure) and all parts of IoT-I are connected to the Internet. The authors' recommendation is to create an independent business to provide logistics services, especially virtual logistics services and the intelligent infrastructure as a base for this business is presented in the following figure.

T1 T2

T6T4T3

T5

IoT-I

IoT-IIoT-I

Internet

Figure 7. IoT network for LIT as a Service (new business)

The proposed new business will manage all the information up and down along to the supply chain and the intelligent things, integrated in this network, will be managed by the owner of the things (these things could be containers, shelves, special package, refrigerators etc.) only the information and the components of the virtual logistics will be part of the flows in the new business. CONCLUSIONS Logistics is one of the most important components of the company in terms of influencing the cost and the time (with all components: lead time, distribution time etc.). In this activity, there are two main flows: one is related to the movement of materials (inclusive products) and another one is related to the movement of information. The second flow is the main object of the Logistics Information Systems and the manipulation of the


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information along this flow is the main challenge at this moment. One solution is to use IoT technologies to collect, process and distribute real-time information in an automated manner. Internet of Things has the main advantage of providing real-time information without any human intervention and without any distortion of the reality. Collected data will be processed using high-speed processing unit and the decision could be taken in the shortest time. The implementation of IoT in Logistics could pave the way for new business and, in the proposed case, this business could be independent. LIS/LIT based on IoT has the advantage of providing services with high accuracy, short time of collection and processing of data, short time decision-making process and the limitation of human intervention and external distortion of reality. REFERENCES Closs, D.J., and Savitskie, K. 2003. Internal and External Logistics Information Technology Integration.

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optimizing travel route cost on highways. In V. Marascu-Klein, M. Ciotu, V. Vali Ciucur (eds.), Advances in Automatic Modelling & Simulation. Proceedings of the ACMOS `13. Brașov, Romania, June 1-3, 2013 (pp. 276-282), WSEAS Press. Available online: http://www.wseas.us/e-library/conferences/2013/Brasov/ACMOS/ACMOS-45.pdf.

Janner, T., Schmidt, A., Schroth, C., and Stuhec, G. 2006. From EDI to UN/CEFACT: An Evolutionary Path Towards a Next Generation e-Business Framework. In The 5th International Conference on e-Business 2006 ({NCEB} 2006) (pp. 8-15). Bangkok, Thailand. Available online: https://www.alexandria.unisg.ch/30346/2/nceb06Final.pdf

Moberg, C.R., Cutler, B.D., Gross, A., and Speh, T.W. 2002. Identifying antecedents of information exchange within supply chains. International Journal of Physical Distribution & Logistics Management 32(9), 755–770.

Nemtanu, F.C., and Pinzaru, F. 2016. Smart city management based on IoT. In Smart Cities Conference 4th Edition, Bucharest, SNSPA. Available online: http://administratiepublica.eu/smartcitiesconference/2016/files/Prezentari/SMART_CITIES_CONFERENCE_2016_Nemtanu_Florin_Pinzaru_Florina_Smart_City_Management_based_on_IoT.pdf.

Nemtanu, F.C., Moise, I., Beldescu, M., and Iordache, V. 2013. Model of Cloudified Traveller Information System Based on Petri Nets. In 36th International Spring Seminar on Electronics Technology - Automotive Electronics. Available online: https://www.researchgate.net/profile/Florin_Nemtanu/publication/282976327_Model_of_cloudified_traveller_information_system_based_on_Petri_Nets/links/5624dfae08ae70315b5e30da.pdf?origin=publication_list.

Nemtanu, F.C., Schlingensiepen, J., and Buretea, D.L. 2015. Cloudification of urban logistics. In SCM4ECR (Ed.), Supply Chain Management for Efficient Consumer Response On-line Conference - 2015. Targoviste. Available online: https://www.researchgate.net/publication/295908901_Cloudification_of_urban_logistics.

Yu, Z., Yan, H., and Edwin Cheng, T.C. 2001. Benefits of information sharing with supply chain partnerships. Industrial Management & Data Systems 101(3), 114–121.