“NICOLAE BĂLCESCU” LAND FORCES ACADEMY
TTHHEE KKNNOOWWLLEEDDGGEE--BBAASSEEDD OORRGGAANNIIZZAATTIIOONN
THE 14TH INTERNATIONAL CONFERENCE
ECONOMIC SCIENCES CONFERENCE PROCEEDINGS 5
27-29 NOVEMBER 2008
“NICOLAE BĂLCESCU” LAND FORCES ACADEMY PUBLISHING HOUSE SIBIU, 2008
Scientific advisors:
Prof. Balteş Nicolae, PhD Assoc.Prof. Stanciu Leontin, PhD Assoc.Prof. Golea Pompiliu, PhD Asst.Prof. Merce Eugeniu, PhD
Copyright: out of charge, all reproductions are authorized provided that specific references are made.
“Nicolae Bălcescu” Land Forces Academy Address: 3-5 Revoluţiei Street, Sibiu Tel.: 0269/432990, Fax: 0269/215554 E-mail: [email protected] E-mail: [email protected] web: www.armyacademy.ro web: www.armyacademy.ro/editura
The authors take full responsibility of the content of their articles.
ISSN 1843 – 6722
ECONOMIC SCIENCES
TABLE OF CONTENTS
The Competitive Advantages of the Transports’ Intermodality in a Global Economy, Hăulică Dan, “Mircea cel Bătrân” Naval Academy, Constanţa……9 Consideration regarding the Management of Risk Insurance according to International Financial Reporting Standard 4 (IFRS 4) – Insurance Contract, Prof. Bostan Ionel, PhD, TA Grosu Veronica, “Ştefan cel Mare” University, Suceava………………………………………………………………………………….…18 Bankruptcy Risk Analysis through Financial Management, Prof. Hlaciuc Elena, PhD, TA Socoliuc Marian, ”Ştefan cel Mare” University, Suceava, Prof. Mates Dorel, PhD, West University of Timişoara……………………….…27 Competitiveness Euro Barometer of E.U. Countries, Prof. Mates Dorel, PhD, West University of Timişoara, Prof. Hlaciuc Elena, PhD, TA Socoliuc Marian, “Ştefan cel Mare” University, Suceava………………………………..…36 Wind Power – An Alternative for the Increasing European Current Energy Needs, Assoc.Prof. Ilie Georgeta, PhD, “Dimitrie Cantemir” Christian University, Bucharest…………………………………………………………………..45 The Tourism Development and the Climate Change, Assoc.Prof. Nicula Virgil, PhD, “Lucian Blaga” University, Sibiu………………………………….…54 The Exchange Rates Volatility in Romania after the EU Adhesion, Assoc.Prof. Nistor Costel, PhD, Asst.Prof. Ştefănescu Răzvan, PhD, Asst.Prof. Dumitriu Ramona, “Dunărea de Jos” University, Galaţi…………61 The Integration and B2B Commerce, Assoc.Prof. Răduţ Carmen, PhD, TA Codreanu Diana, ”Constantin Brâncoveanu” University, Piteşti………..69 Influences of the Global Financial Structure over the Firm’s Financial Management, Assoc.Prof. Stanciu Leontin, PhD, “Nicolae Bălcescu” Land Forces Academy, Sibiu, Accountant Stanciu Liliana-Mioara……………….75 Financing Decision – Main Driving Force for Implementing the Firm’s Financial Policy, Accountant Stanciu Liliana-Mioara, Assoc.Prof. Stanciu Leontin, PhD, “Nicolae Bălcescu” Land Forces Academy, Sibiu……………...80 Financial and Technical Results of Insurance Companies, Assoc.Prof. Văduva Maria, PhD, “Constantin Brâncuşi”, University, Târgu-Jiu……..…88 Aspects regarding Banking Marketing in the Context of Globalization, Asst.Prof. Bălăceanu Valeria Arina, PhD, Ecological University of Bucharest……………………………………………………………………………….…95
3 New Requirement in Banking Management, Asst.Prof. Bălăceanu Valeria Arina, PhD, Ecological University of Bucharest……………………..104 The Personal Guarantees in Crediting Process, Asst.Prof. Bercean Radu, PhD, “Spiru Haret” University, Blaj………………………………………………..113 The Capitalization of the Banking Guarantees and Recovery of Unperformed Credits, Asst.Prof. Bercean Radu, PhD, “Spiru Haret”, University, Blaj……………………………………………………………………….…119 The Guarantee Banking System in Crediting Process, Asst.Prof. Bercean Radu, PhD, “Spiru Haret”, University, Blaj………………………………………128 The Manner of Approach and Ways of Ensuring Financial Balance, Asst.Prof. Căruntu Genu Alexandru, PhD, “Constantin Brâncuşi” University, Târgu. Jiu…………………………………………………………………137 Conceptual Approaches concerning the Management of Investment’s Risks, Asst.Prof. Cibotariu Irina-Ştefana, PhD, Asst.Prof. Apetri Anişoara- Niculina, PhD, “Stefan cel Mare” University, Suceava………………………..147 Possibilities of Avoiding the Bankruptcy by Adopting the Changing Strategies, Asst.Prof. Cibotariu Irina-Ştefana, PhD, Asst.Prof. Mihalciuc Camelia-Cătălina, PhD, “Ştefan cel Mare” University, Suceava…………...155 Aspects regarding the Importance of Having a Financial Auditing Inside Companies, Asst.Prof. Ciuhureanu Alina Teodora, PhD, Romanian-German University of Sibiu, Prof. Balteş Nicolae, PhD, “Lucian Blaga” University, Sibiu……………………………………………………………………………………….161 Predictable Changes in the 21th Century Organization and Implications over the Financial-Accounting Activity, Asst.Prof. Ciuhureanu Alina Teodora, PhD, Romanian-German University of Sibiu, Prof. Balteş Nicolae, PhD, “Lucian Blaga” University of Sibiu………………………………………..…169 Market Entry Strategies for Emergent Economies, Asst.Prof. Gheorghiu Anda, PhD, Prof. Gheorghiu Anca, PhD, ”Hyperion” University, Bucharest………………………………………………………………………………..175 The Administration of the Fiscal System and the Optimization of the Fiscal Gathering, Asst.Prof. Ispas Roxana, PhD, University of Craiova…..187 Financial Crises and Their Impact on the Economy, Asst.Prof. Merce Eugeniu, PhD, “Alma Mater” University, Sibiu…………………………………194 The Measurement of the Enterprise’s Financial Performances in the Context of Competition and the Competitiveness Aspects, Asst.Prof. Mihalciuc Camelia, PhD, Asst.Prof. Apetri Anişoara, PhD, “Ştefan cel Mare” University, Suceava……………………………………………………………………203 Economic Calculation Used in Work Safety Domain, Asst.Prof.Eng. Popa Simona, PhD, Petroleum-Gas University of Ploieşti, Ec. Rujoiu Elena, Petrotel Lukoil Ltd., Ploieşti………………………………………………………….212 Economic Effects of Work Related Accidents, Asst.Prof.Eng. Popa Simona, PhD, Petroleum-Gas University of Ploieşti, Ec. Rujoiu Elena, Petrotel Lukoil Ltd., Ploieşti………………………………………………………….216
4 Some Aspects regarding Strategic Planning, Consumer and His Behaviour in the Post-Modern Era, Asst.Prof. Puiu Carmen, PhD, Asst.Prof. Stanciu Marieta, PhD, Assoc.Prof. Sîrbu Mirela, PhD, University of Craiova……..221 Electronic Banking Services and Risk Management Principles in the Society Based on Knowledge, Asst.Prof. Romanescu Marcel Laurenţiu, PhD, “Constantin Brâncuşi” University, Târgu. Jiu……………………………229 Consumer and His Behaviour in the Post-Modern Era, Asst.Prof. Stanciu Marieta, PhD, Asst.Prof. Puiu Carmen, PhD, University of Craiova………238 E-Defence – Instrument for Military Capabilities Optimizing, Asst.Prof. Pârvuţ Valentin, “Nicolae Bălcescu” Land Forces Academy, Sibiu………..246 Some Aspects of the Evolution in Perspective of Some Fields of Economics in District Gorj, Asst.Prof. Văduva Cecilia-Elena, PhD, “Constantin Brâncuşi” University, Târgu. Jiu……………………………………………………251 The Real Guarantees in Crediting Process in Agriculture, Asst.Prof. Bercean Radu Vlad, “Babeş-Bolyai” University, Cluj Napoca………………262 Tendencies in Defining an Optimum Globalization Model, Asst.Prof. Popa C. Cătălin, „Mircea cel Bătrân” Naval Academy, Constanţa…………………271 Functional Overview of Financial Crises Development and Propagation, Asst.Prof. Popa C. Cătălin, Assoc.Prof. Golea Pompiliu, PhD, “Mircea cel Bătrân” Naval Academy, Constanţa………………………………………………..278 Evolutions and Perspectives on Romanian Long Term Financial Instruments, Asst.Prof.Ec. Popa Daniela, Romanian-German University of Sibiu……………………………………………………………………………………….283 Aspects Regarding Savings Management and Its Involvement in Long Term Financing, Asst.Prof.Ec. Popa Daniela, Romanian-German University of Sibiu……………………………………………………………………………………291 The Management and Accountage of the Risks and Personnel in the Construction Activity, TA Breuer Adela, TA Lesconi Frumuşanu Nataliţa Mihaela, “Eftimie Murgu” University, Reşiţa……………………………………300 The Budgeting of Projects Financed Through Structural Funds, TA Breuer Adela, TA Lesconi Frumuşanu Nataliţa Mihaela, “Eftimie Murgu” University, Reşiţa………………………………………………………………………306 Business Ethics, TA Ciurea Jeanina Biliana, “Eftimie Murgu” University, Reşiţa………………………………………………………………………314 Background to the Industrial Park Concept, TA Ciurea Jeanina Biliana, “Eftimie Murgu” University, Reşiţa…………………………………………………322 Intuition on Financial Culture in Treasury Management, TA Georgescu Floarea, TA Murariu Ioana-Adriana, „Spiru Haret” University, Bucharest………………………………………………………………………………..330 New Dimension of the Trans-National Corporation Management in the Circumstances of the Economical Globalization, TA Murariu Ioana-Adriana, TA Georgescu Floarea ’’Spiru Haret’’ University, Bucharest……………….340
5 Risk Management and Prevention for Financial Instruments Based on International Standards of Financial Reporting IAS 32 and IAS 39, TA Grosu Veronica, Prof. Bostan Ionel, PhD “Ştefan cel Mare” University, Suceava…………………………………………………………………………………..350 The Relationship among Economy, Organization and Management within New Economies, TA Parpandel Denisa, Asst.Prof. Belu Nicoleta, PhD, Asst.Prof. Voiculeţ Alina, PhD, TA Rizea Carmen, ”Constantin Brâncoveanu” University, Piteşti……………………………………………………359 Extending Franchising Operations within New Economies, TA Parpandel Denisa, Asst.Prof. Belu Nicoleta, PhD, Asst.Prof. Voiculeţ Alina, PhD, ”Constantin Brâncoveanu” University, Piteşti…………………………………...367 A Comparative Study on Corporate Taxation in Romania and in Other European Union Member States, TA Popa Ionela, TA Pietraru Alina, “Constantin Brâncoveanu” University, Piteşti…………………………………..374 Compatibility between Romanian Economic and EU Entities in terms of Document Management, TA Şerban Mariuţa, TA Elena Burtea, „Spiru Haret” University, Bucharest………………………………………………………..383 Exposure of Public Entities, Jr.TA Florea-Ianc Maria Mirabela, “Constantin Brâncuşi” University, Târgu-Jiu...... 390 Romanian Commercial Banks and Credit Risk in Financing SME, Covaci, Brînduşa, PhD, ”Spiru Haret” University, Bucharest…………………………398 Small or Medium Sized Nowadays Enterprises in the Contemporary Economy, Istocescu Amedeo, PhD, Academy of Economy Studies of Bucharest………………………………………………………………………………..407 The Competition Politics in the European Union and Romania, Moga Ilie, PhD, “Lucian Blaga” University of Sibiu…………………………………………..411 Reflections regarding the Banking Management under the Perspective of Basel II Agreement, Serediuc Titus, PhD, Romanian-German University of Sibiu…………………………………………………………………………………….…418 The Role of Tourism in the Sustainable Development of the Mountain- Rural Area of Romania, Blaj Robert, PhD, Forest Country Office of Sibiu, Stanciu Mirela Aurora, PhD, ”Lucian Blaga” University of Sibiu…………426 Some Aspects Regarding the External Audit of European Union Funds, Ec. Bobeş Florina, CN Transelectrica Ltd., Sibiu……………………………..432 The Audit Performed by the European Court of Auditors – Objectives and Responsabilities, Ec. Bobeş Florina, CN Transelectrica Ltd., Sibiu……….439 Competitiveness Politics. Notion, Characteristics and Treaties Regulations, Ec. Paulescu Ioan Anton, Asst.Prof. Andriţoi Claudia, PhD, ”Eftimie Murgu” University, Reşiţa…………………………………………………445 Banking Audit and Control – The Premise of Efficiency in the Knowledge Based Organization, Ec. Stoica Stela, Leumi Bank Romania Ltd………...459
6 Inflation – A Decisive Factor of Management Policy of National Bank of Romania, Marin Camelia, Sima Izabela, “Constantin Brâncoveanu” University, Piteşti………………………………………………………………………466 Treatments and Options regarding the Management of the Financial Phenomenon, Oprea Margareta, Academy of Economic Studies of Bucharest………………………………………………………………………………..473 European Energy Independence within the Knowledge Triangle, Pricopi Marius, “Lucian Blaga” University, Sibiu………………………………………..482 Inequity of Globalization: Rich State, Poor State, Ţeican Mihail- Cornel ……………………………………………………………………………………490 Comparative Study of the Option of Taxing Profits and Income from Small Enterprises, Paculea Ion Marian, The Exchequer of Sibiu………………….500 Accounting Management for Foreign Trade, Stancu Franca, “Tibiscus” University, Timişoara………………………………………………………………….506 Activity of Foreign Trade, Stancu Franca, Dăianu Codruţa, “Tibiscus” University, Timişoara………………………………………………………………….513
7 8 Knowledge Based Organization 2008 International Conference
THE COMPETITIVE ADVANTAGES OF THE TRANSPORTS’ INTERMODALITY IN A GLOBAL ECONOMY
Hăulică Dan
“Mircea cel Bătrân” Naval Academy, Constanţa
Abstract The multimodal freight transport has emerged as one of the most dynamic dimension of the transport sector, becoming for now the main element supporting global commodity and generally supply chains. Yet the lack of seamlessness and inefficiencies in general as well as the rising costs and complexities of shipping and delivering goods, are adding to profit pressures faced by manufacturers across the globe. The paperwork discusses the concept of intermodality, and then examines some of the consequences of the lack of seamlessness in terms of freight transport inefficiency. From this perspective the study examines the new developments in which intermodality, technology and logistics are changing and will have the impact of heightening competitive advantage and reducing constraint points in production value chains and global production networks.
Keywords: intermodality, maritime transport, sea short shipping, supply chains, logistics
In the last decade there has been a steady growth of global trade and concomitantly of freight transport. The drivers of the shifts in transportation and in the distribution of goods are the increased trend toward knowledge sharing, the vertical disintegration of firms, the enlargement of markets, the success and consolidation of the network- firms which are becoming more specialized in their core business. The development of transport services and adequate infrastructures to handle freight flows have become an important 9 Knowledge Based Organization 2008 International Conference factor of economic competition between regions. The whole world is becoming our market but also our competitor. But competition takes place more at the level of sourcing and distribution processes than of production [3]. Thus, the increase of competition has made it necessary for firms to reduce or even eliminate stocking and distribution costs and to follow the “speed imperative”. The best- known illustration of this is “just-in-time” (JIT) production, which reduces inventory stocks, enhances quality control by making defective work more immediately apparent, and accelerates time to market [2]. Nowadays, the increased opportunities for communications, the efficiency of transport operations as well as the increased standardization of production processes, make it possible to integrate supply chains on a world wide scale [5]. The object of attention must be the “seams” themselves. By this we mean the points of friction where smooth flows can become constrained or interrupted. This becomes more complex as we imagine networks of different types intersecting with one another. In a simple way of course we have infrastructural seams (differences in rail gauges and changes in modes), operational seams (signaling systems, speed constraints), functional seams (processing points where goods change form and value as well as distribution points where repackaging and finishing occurs before onward movement) and of course institutional seams (tariffs, taxes, pricing, data sharing, customs) [1]. The lack of seamlessness has numerous consequences and can be witnessed at several levels [1]. First of all, as logistic activities are highly concentrated in few gateways (ports and airports) and in strategic logistic regions which often shows congestion, delays in loading and unloading can cause bottlenecks in the chain. Thus, some companies are setting up distribution centers next to their overseas factories from where finished goods or components are shipped directly to an end customer rather than trying to bring goods into the U.S. or Europe first and then ship them to the customer. That can shave weeks off delivery schedules. Other moves include hiring third parties that specialize in operating global distribution systems, setting up warehouses closer to main gateways, and bringing in products through less overtaxed ports [3]. 10 Knowledge Based Organization 2008 International Conference
Bottlenecks can be found also at infrastructure level: in Europe 75% (16000 km about) of the railway network and 10% of the road network (7500 km) are daily subjected to congestion. The solution to the saturation of main links in Europe has been foreseen in the creation of Trans-European networks and corridors and in the development of short sea shipping. At the moment in Europe most of the logistic activities are concentrated in the Golden Triangle (Amsterdam – Paris – Frankfurt / Main) which serves the biggest logistics operators (for example TNT Express Worldwide): such location is accessible within four hours from the main industrial areas (the European core). But, due to the emergence of Asian countries, new routes are required (as Suez Canal, trans-Asian railway) and it seems to indicate the future development of new logistic regions (as the Mediterranean). Having identified the quest for a seamless transport market it is important to identify the forces which are driving this quest. First in a general perspective, it is clear that intense competitive pressures require goods and corresponsive services, producing firms to manage almost simultaneously multiple inter-organizational information and material flows. The global scale of this task makes it especially daunting. But attaining efficiencies in this complex endeavor allows firms to source, manufacture, and deliver their goods and services better, faster and cheaper. This development has forced a radical rethinking in the architecture of production, the importance of traditional supply chain relationships and the role of logistics. Logistic activities have become a strategic actor in the transport systems and in the competitive assets of regional economy. In 2007 logistics activities contributed to the 16% of world GDP (18% in EU) and the market of this sector has increased by more than 6% on average, while logistics outsourced services grew by 11,2%. Transport and logistics are outsourced for about 30% of the firms and their costs account for 10% to 30% of the total production cost of an item, although the percentage varies according to the type of product. Logistics encompasses the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements. 11 Knowledge Based Organization 2008 International Conference
Second, one of the most remarkable shifts in corporate strategy and operational activity in recent decades has been the externalization of production so that corporations are now reliant upon external resources. Once centrally located, operational activities (such as product design and development, services and facilities management, logistics and even manufacturing), have been taken over by suppliers. These activities have come to be represented by the term “supply chain management” as a way of analyzing and detailing the flows of products and materials in complex organizational structures [5]. In addition international flows have been expanded as a result of a huge retailing demand. The search for competitive advantage at a global scale has forced firms to rely heavily on outsourcing, to seek out favorable labor and resource advantages and to attain insofar as possible flexibility in resource access regardless of distance [3]. Third, it is important to recognize that globalization, logistics and supply chain management, depend to a considerable extent upon the ways in which separate modal systems can be brought together into intermodal structures. A key factor in the development of intermodal structures has been the application of containerization. The container has entered virtually every ocean shipping market over a wide range of freight types and has revolutionized shipping. While slower to enter other modal systems, containerization using units of varying dimensions is also being applied in the road transport, rail and airline industries [4]. The implications of containerization are vast. For example, application of this innovation has produced a higher capitalization in terminal facilities because of the need for specialized machinery. Containerization has produced traffic concentration and the emergence of load centers where hub/feeder network structures have evolved in order to justify the capital costs of the system. In addition, the containerization revolution has produced a need for larger site requirements of intermodal terminals and increasingly important as a result of the need for larger and larger capital outlays as restructuring of the container industry is taking place. This process of concentration and restructuring is being widely felt and is not unique to the container industry.
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Fourth, the role of time in global operations has been heightened. The move to “just-in-time” management of production and distribution processes and the attempt to maintain zero inventories to lower costs has become essential. Differentiation between products and services is founded on so called time-based competition (TBC). Basically firms must develop strategies for production and delivery with the purpose of supplying customers with products and services in as little time as possible. Cost, value and speed are not tradeoffs but objectives in their own right. The responses from transport must include a greater sensitivity to the timing of connections, arrivals, departures and the capacities of vehicles and storage units. The demand for real time information access and exchange means that transport operations must expand their reliance on efficient communications and computer networks through electronic data interchange (EDI) for scheduling and tracking. Finally opportunities for economies of scope and customized production runs require flexibility in modal choice and timing. The rapidly changing demands of the marketplace now force firms to organize their operations around real-time information about consumer needs and the availability of productive capacity. Traditionally logistics has been fed information on customer requirements from long-range forecasts that drove the production cycles of firms. Firms now require current and immediate information about the location of productive activities as well as information linking the locations with available transport opportunities. Thus the need for seamlessness is being driven in the first instance by the challenge of rapid and flexible customer response. One way of capturing the response to this need is through the extended enterprise, a group of strategically aligned companies that focus on specific market opportunities. In this way firms can exploit the collective resources of the entire extended network of suppliers, vendors, buyers and customers. Obviously fitting logistics in an integrated manner to these networks by the selection of appropriate modes and services is crucial [8]. Into a global world, the success of intermodalism depends upon the more general internationalization of standards that has facilitated globalization. In this regard, the dimensions of a sea freight container can be likened to the technical specifications of the nearly universally 13 Knowledge Based Organization 2008 International Conference available computer operating systems and office software suites that emerged in the 1980s and 1990s. Intermodalism is also contingent upon regulatory changes and greater incorporation of information technology into transportation systems. With regard to the former, transport has been among the most strictly regulated services sectors in many economies, with different bodies regulating separate modes. To permit goods to be passed easily among modes has required some degree of regulatory harmonization. Intermodalism is regarded as a particularly important cure for land transport congestion but has contributed to that same problem in some areas. While the expansion of global economic activity has been predicated upon the earlier discussed advances in long-haul transportation, most trips, both for people and for goods, are relatively short-haul. One result has been worsening congestion on highways in densely populated conurbations. Intermodalism offers a partial solution by shifting a portion of interurban trips to rail. But intermodal transfers have exacerbated congestion within certain urban areas, especially those adjacent to major seaports that attract and disgorge a colossal volume of containers daily. In addition the growth of “freight villages” has become a new form of intermodalism especially in Europe. These are intermodal terminals located inland from the port where the container traffic is unloaded and repackaged away from congested areas. These terminals usually involve motor carrier and rail access, often through dedicated highway infrastructure. In addition they are equipped with sophisticated information and technology software that allows tracking and tracing of goods. An example of this occurs in both Bologna and Verona in the north of Italy, in Dresden (Germany) or in Sogaris (France). Intermodal freight transport as a part of total freight transport in Europe has grown, from about 113 to about 214 million tkm / year during the period 1995-2005. As far as total freight (goods) transport is concerned, intermodal traffic has grown in Europe by an average rate of 2% per year or for more than 75% during the period 1970-2000. During the same period, the market share of intermodal freight transport in total volume of freight transport work has increased from 5% to 8%. The market share of the international intermodal transport 14 Knowledge Based Organization 2008 International Conference has been about 91%, and of the domestic one about 9%. In the international market, rail has carried out about 20% of the intermodal transport volumes, inland waterways 2%, and short-sea shipping 78%. In domestic market, rail has carried out about 97% of the volumes, and inland waterways 3%. However, an evidence has also shown that the market share of intermodal transport in terms of total volume of freight transported (tones) has always been modest, only up to 2% in 1987, with an expectation to approximately double by 2010. There is an obvious reason for such modest market share of the intermodal freight transport. Most of intermodal freight services take place in medium - to long-distance Trans-European markets-routes (over 500 km), in which only 10% of total freight transport demand exist. Contrary, about 90% of this demand exists in the markets - distances up to 200 km where road haulage has dominated. The accession of the new member countries to the European Union will influence logistics and transport flows in a number of ways. The impact that the intermodal transportation network has on the ability of regions to position themselves more effectively in the national and global space-economy has so far not been studied. A number of problems prevent the implementation of intermodal transport on a broad scale. The involvement of various actors in intermodal transport, not only leads to an increase of the costs and a rise of the prices asked but also to a non-transparency of the process, which makes it less attractive for shippers to switch from conventional transport to intermodal transport. There is currently a significant debate surrounding issues of freight transport sustainability. The problems to be faced are: excessive emissions that are detrimental to local and global environments, excessive fatalities and injuries, excessive use of finite petroleum resources, excessive congestion levels and the impact that these have on the unsustainability of modern supply chains. Transport, and particularly freight transport, has recently been growing faster than GDP. Thus, despite the increasing concerns about the environmental impact of transport and increasing attempts to regulate transport through a more sensitive price mechanism in many countries, the transport intensity of the economy has been increasing. As a consequence of the growth in energy consumption, CO2 15 Knowledge Based Organization 2008 International Conference emissions from transport also continued to increase. Aviation is the sector’s fastest growing energy consumer and road transport is the biggest, consuming around 72% of transport energy (including marine bunkers). The increased transport demand and the continuing shift of transport demand towards road and air, combined with the increasing use of heavier, more powerful vehicles and trucks, have offset the improvements in fuel economy of improved engine technology. Overall four categories of measures have emerged: technology based ones (change in vehicles and fuel, reduction of empty hauling, etc.); infrastructure based ones (improvements in efficiency of infrastructure networks); flow based ones (managements of traffic and logistic flows); demand based ones (modal substitution, pricing incentives, regulatory measures). For the transport sector, policy priorities in the EU action plan to improve transport efficiency include incentives for optimal occupancy of vehicles, the promotion of new and alternative infrastructure and subsequently modal shifting and improving intermodal transport systems, developing alternatives to air transport, completion of the internal market in rail transport and changing behavior regarding mobility.
References [1] Aeppel, T., Manufacturers Cope with Costs of Strained Global Supply Lines. Wall Street Journal, December 8, 2004. [2] Dicken, P. Global Shift: Reshaping the Global Economic Map in the 21st Century, New York, Guilford, 2003. [3] Eldon, D., Outsourcing Is A Key to Promoting Competitiveness, Wall Street Journal, August 9, 2004. [4] Greis, N.P., Kasarda, J.D., Enterprise logistics in the information era, California Management Review, vol. 39, 2000 pp. 55-78. [5] Hall, D. and Braithwaite A., The Development of Thinking in Supply Chain and Logistics Management, London, Pergamon, 2001, pp. 81-98. [6] Herrod, A., Implications of just-in-time production for union strategy, Annals of the Association of American Geographers, vol. 90, 2000, pp. 521-547. [7] Kasarda, J.D., New logistics technologies and infrastructure for the digitized economy, 4th International Conference on Technology Policy and Innovation, 28-31 August, 2000.
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[8] McKinnon, A., Integrated Logistics Strategies. Handbook of Logistics and Supply Chain Management, London, Pergamon, pp. 157- 170, 2001. [9] *** European Journal of Transport and Infrastructure Research, “Freight Transport, Seamlessness, and Competitive Advantage in the Global Economy”, 2006.
17 Knowledge Based Organization 2008 International Conference
CONSIDERATION REGARDING THE MANAGEMENT OF RISK INSURANCE ACCORDING TO INTERNATIONAL FINANCIAL REPORTING STANDARD 4 (IFRS 4) - INSURANCE CONTRACT
Prof. Bostan Ionel, PhD, TA Grosu Veronica
”Stefan cel Mare” University, Suceava, [email protected], [email protected]
Abstract The purpose of this work is to underline the connection between the management of the risk of insurance, function of its nature and its assessment in the accounting according to the international standard of financial reporting – IFRS 4.The authors are trying to show the manner in which certain decisions that must be taken regarding the prevention of the negative consequences determined by a bad analysis, administration and assessment of the risk of insurance can influence the economic and social value of the insurance companies. The new demands of solvency for the insurance companies based on the risk represents one of the priorities for the European Union, and that is why in this article we aim to show what is the purpose of the monitoring of the solvency of the insurances, one of the main objectives of the management in view of keeping the financial autonomy, the flexibility of the administration, but also support of the decisions for financial straightening in the conditions that is necessary and imposed.
Keywords: international standards of financial reporting 4 (IFRS-4), financial markets, insurance risk, financial-economic harmonization
1. Introduction The development of the world trade influences significantly the industry of the insurances, due to the appearance and development of 18 Knowledge Based Organization 2008 International Conference the multinational corporations that consider the world as their private market and they try to place their production operations in the countries that offer economic advantages. In the same time, these corporations request cover in insurances valid across the world, which represents a challenge for the industry of the insurances [3]. In this context, the insurance companies must develop their financial capacity and create administrative agreements in order to protect the major values that are exposed to damages. In the same time it is necessary to develop the set of intermediaries in insurances, of the offices of administration of the damage, as well as of the facilities offered by the reinsurance[4]. A large number of financial companies were able to rapidly adapt to opportunities or threats of new market dynamics. The duty of reporting to national standards, which are different from homeland standards or those given by the Communitarian Legislative Institution, has lead to an increased need of general orientation; as for the internal and external information users, this lead to the need of an efficient informational system, realistic and appropriate, which should build a real support for the decisional process and for helping the companies to easily build internal and external relationships in the business environment[12]. The modern financial market, characterized by a high level of efficiency in using economical-financial informational system, has certain limits determined by its instability, threatening the trust of the investors and sets unfair current market values, leading to financial crises[1]. The elimination of the financial markets’ instability and an improvement on the informational system are now targets which no one should ignore. It is very important to internationally apply a set of accounting standards in order to draw annual financial sheets; but this comes with certain disadvantages, not only in theory but in praxis also. One can identify 3 main objectives that come with IAS/IFRS implementation: guaranteeing a proper functioning of capital markets; common accountancy methodologies, avoiding trouble caused by false information; ensuring the balance sheet receivers, the necessary information for the decisional process; protecting the investors through an effective comparative process of data generated by the company but what are there 2 symbols used for the international 19 Knowledge Based Organization 2008 International Conference accounting standards? The IAS presents strictly the accounting character. In time, these principles have been partially modified by introducing the current standards (IFRS), which are able to guarantee the information transfer at a high quality level, having accounting and financial character for presenting and drawing annual financial sheets. The IFRS are established on an international procedure that includes: accountants, financial analysts, business environment, stock markets, legislative and controlling authorities, professors and other persons or organizations from all around the world [2]. In the perspective of globalization and integration of financial markets, harmonizing the financial-economical information at an international level is a main priority which should be immediately solved, in order to create a universal accounting language. We can state that the accounting globalization is already real, and the national accounting principles are progressively replaced with a set of international recognized standards and procedures [9]. At a communitarian level, the insurance segment has 2 types of accounting regulations: Accounting directives - 91/674/CEE Directive referring to annual accounts and fixed accounts of the insurance companies. Directive IV (No 78/660/CEE) referring to annual accounts of certain types of companies, Directive VII (No 83/349/CEE) referring to fixed accounts; The Regulation of European Commission No. 1606/2002 (IFRS Regulation) which states the compulsory character of certain types of IFRS at a communitarian level, through CE regulations, for quotable companies to draw their financial sheets, starting from 1st of January 2005[11]. In our country, the insurance companies will have to apply the OMFP 907/2005 stipulations, according to which they will draw a set of financial sheets accordingly to IFRS and to Regulation No 1606/2002, which states that the stock market quoted companies would have to apply IFRS for their fixed financial sheets, starting from 1st of January 2007. The transition to IFRS will not only be available for the accounting segment, but it will have more complex implications, from basic activity planning, up to strategic management [8]. The creation of the free zone trade inside EU influences the insurance policy and the risk management through the appearance of 20 Knowledge Based Organization 2008 International Conference the following opportunities and dangers: acting on a new market, free and with an important potential of growth of the profit and of the work places; the possibility of the insurance company from other country to offer its products in all the member states of Ulceration of the branches or subsidiary companies in all of the member states; the potential clients will be able to have access to the foreign insurance products; the increase of the competition that can have the effect of lowering of the insurance tariff practiced by some companies when they are very high with no justification; the tendency of standardization of the covered risks, the conditions and the terms of the insurance contracts; the tendency of consolidation of more European companies of insurance by acquisitions and fusions[7].
2. The nature of the risk in insurances and its classification A definition of the mere risk refers to the uncertainty of producing of an event that has as effect a damage irrespective of its nature, excluding the possibility to obtain any earning as a consequence of the occurrence of the mere risk, while the speculative risk refers to the uncertainty that the occurrence of an event that might have as effect either the obtainment of an earning or of a loss. Another classification of the risks involves the manner in which the occurrence of the uncertainty can modify in time. Another classification of the risks in insurances divides them into subjective and objective risks. The subjective risks refer to the appreciation of a person whose state of doubt or worry is caused by a given event. In essence the subjective risk represents the uncertainty of psychological nature that is created out of the mental attitude or the state of a person [5]. The objective risks are different from the subjective risks by the fact that they can be noticed more precisely and, as a consequence, measurable [14].
3. Sources of production of the mere risks in insurances The risk regarding the property any owner or user of mobile or immobile goods is submitted to the damage risk, destruction or robbery, as consequence of the occurrence of some natural events of human actions. The businesses can be affected by the potential losses of goods as consequence of some fires, explosions, etc [10].
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The risks regarding the civil responsibility the persons as well as the companies can be responsible for the damage made to other persons or companies out of their fault. As a consequence, the physical persons as well as the companies must give special attention for the identification of all sources of risk of civil responsibility that might appear and assure the necessary measures in order to face the possible damages.
4. Methods of the risks assessment The probability of producing damages represents the probability in time of appearing of the risk or the relative frequency of production of damages in a period of time. This method applies either for the probability of producing one event, either for a bigger number of events. The probability of producing damage is expressed as the report between the number of the damage and the great probability of appearances and the total number of possible damage in a certain group [6]. Example: 2500 buildings from a location are exposed to the risk of a landslide. Based on the previous experience it is known that 1000 of them will be affected by this event. Solution: - probable number of damage = 1000 - total number of the buildings exposed to the risk = 2500 The probability of producing the damage= the probable number of damage/ the total number of the buildings exposed to the risk = 1000/2500 = 4% So the probability of the damage productions of 4% The degree of exposure to the risk can be determined as being the sum of the objective risks presented in a given situation, representing the relative variation of the estimated damages. Notations: Objective risk = RO; Probable variation of the estimated damage = VPPe; Total number of the estimated damages = Tpe; According to these notations we have the following calculation relation: 22 Knowledge Based Organization 2008 International Conference
RO = VPPe/ Tpe Example: In the locations X and Y there 25000 buildings, the medium annual average of the fires is of 250 in each location. Based on the statistics we can estimate that for the location X in the following year the fires numer will be between 245 and 255, and in the city Y between 230 and 270.The degree of exposure to the risk (Gexpr) will be determined as follows: For the location X - GexpR = 255 - 245/100 = 10/100 = 10%; For the location Y- GexpR =270 – 230/100 = 40/100 = 40%; In the case when the calculation of the degree of exposure to risk has no meaning for one objective, this becomes important in the situation of the increase of the number of exposed objectives to the risk. As a consequence, the degree exposure to risk decreases as the object exposed to risk increases. Example: An enterprise X with chemical profile where the people work with toxic has 200 employees. Another enterprise with the same profile has 100 employees. The probability of the damage producing as a consequence of the risk exposure is 30 % in a year for each enterprise. In conclusion for the enterprise X, the total number of damage is: For the enterprise X–0,30 x 200 = 60. For the enterprise Y – 0,30 x 100 = 100. Based on the statistics, for the enterprise X it was an average of 16 damages per year, and for the enterprise Y an average of 48 damages per year. Applying the method of the exposure risk, we find out that: For the enterprise X - GexpR = 16/60 = 0,27 or 27%; For the enterprise Y - GexpR = 48/30 = 1,6 or 160 %; In conclusion, we can notice the fact that the degree of exposure to risk increases, the loss suffered being indirect proportional with the number of objectives in the situation of producing of a risk.
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5. The management of the insurance risk In the conditions which the risk sources can be identified, and the caused damages by the production of the risk can be estimated, certain decisions should be taken regarding the way of protecting the persons and the companies against the negative consequences of these risks. The process of the risk management must contain in the first place: i identification of the risks the management concentrating generally on the identification of the relevant exposures for the production of mere risks; the assessment of the risks stage where the risks are classified function of the size of the quantum of the damage; the selection of the techniques and methods of management of the risk, respectively all the decisions for the administration of the identified risks;
6. The economic and social value of the insurance societies. The monitoring of the insurance solvency. The sum of the funds accumulated helps the insurance company to reduce the maximum possible damage. The cumulated liquidities of the insurers are invested, what allows a better allocation of the economic resources and the increase of the production. The insurance companies can be involved actively in the prevention and decrease activities of the damage; they can contribute to the social stability and of the business environment, through the protection of the business and its persons. The solvency of the insurance company represents the ratio between the solvency margin that the insurance company disposes of and the minimum solvency margin. The European Commission takes into account the review of the request regarding the solvency of the insurance companies from the EU member states, for the improving of some aspects, mostly for what regards the more sensitive approach towards the risk profile. [13].
7. Summary If after the analysis of the financial reports and of the financial controls made, we can state that it is on the threshold oh insolvency or it has a high risk of insolvency, what endangers the assumed obligations towards the insured, in this case we will request from the Administration Council to constitute and apply a plan of financial straightening that will have to foresee: the limitation of the volume of 24 Knowledge Based Organization 2008 International Conference gross and net subscribed bonuses, on a period from 3 months to one year, so that these could not overpass the established values in the decision of opening of the straightening procedure; the interdiction of renew the contracts of insurance come to their finality, or as it is the case, of only a few types of insurance contracts established in the decision of financial straightening; the insurance company should make the transfer of the portfolio of insurances, totally or partially, under the legal conditions, in case this measure is disposed, the insurer will do the operations regarding the portfolio transfer as emergency in no more that 60 days from the date of the decision; We could say that the margin and the degree of solvency represent the two factors significant, if not sufficient for the reflection of the real financial stability of an insurer.
References [1] Azzali Stefano, Allegrini Marco, Principi Contabili Internazionali, Giappichelli Editore, Torino, 2006, pp.159. [2] Barry j. Epstain, Abbas Ali Mirza, IFRS - Interpretare şi Aplicare, Ed. Publishing House, pp.235, Bucureşti, 2007. [3] Bostan Ionel, Company control implementation, în Tehnologii moderne, calitate, restructurare, Universitatea Tehnică a Moldovei, pp. 305-308, Chişinău, Republica Moldova, 19/21 Mai 2005. [4] Bostan Ionel, Internal control of functions/ activities în Tehnologii moderne, calitate, restructurare, Universitatea Tehnică a Moldovei, pp. 302-304, Republica Moldova , Chişinău, 19/21 Mai, 2005. [5] Constantinescu Dan Anghel, Contabilitatea în Asigurări, Bucuresti, Ed. Semne’99, pp.145, 2004. [6] Constantinescu Dan Anghel, Tratat de Asigurări, vol.I+II, Bucureşti, Ed. Economică, pp.37, 2004. [7] Constantinescu Dan Anghel, Rotaru Alexandru, Managementul finaciar în asigurări, Bucureşti , Ed. Economică, 2005. [8] Dobrin Marinică, Contabilitatea specifică domeniului asigurărilor, Bucureşti, Ed. Bren, 2005, pp.178. [9] Dobrin Marinică, Ionescu Lidia, Contabilitatea Societăţilor de Asigurări, Bucureşti, Ed. Semne’99,pp.128, 2003. [10] Dobrin Marinică, Galiceanu Mircea, Asigurări şi Reasigurări, Bucureşti Ed. Fundaţiei România de Mâine, 2000, pp.2005. [11] Mateş Dorel, Matiş Dumitru, Cotleţ Dumitru, Contabilitatea Entităţilor Economice, pp.168, Timişoara, Ed. Mirton, 2006. 25 Knowledge Based Organization 2008 International Conference
[12] Paolo Allegrini, Fellegara Antonio, Contabilità Generale e Bilancio D’Impresa pp.321, Torino, Giappichelli Editore,2006. [13] Mateş Dorel, Grosu Veronica, Socoliuc Marian, Iancu Eugenia, Risk insurance evaluation according to IFRS 4. The solvency of the insurance company, methods of calculation of the solvency rate available in the accountancy, Revista Contabilitate şi Informatică de gestiune, nr. 23, p.32- 45, 2008. [14] Văcărel Ionel, Bercea Florin, Asigurări şi reasigurări, ed. a II-a, pp.27, Bucureşti, Ed. Expert, 2007. [15] Standardele Internaţionale de Raportare Financiară, Ed. CECAR, Bucureşti, 2005.
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BANKRUPTCY RISK ANALYSIS THROUGH FINANCIAL MANAGEMENT
Prof. Hlaciuc Elena, PhD, TA Socoliuc Marian, Prof. Mates Dorel, PhD,
”Ştefan cel Mare” University, Suceava, [email protected], [email protected], West University of Timişoara, [email protected]
Abstract The risk of bankruptcy is closely linked to the state of solvency, reflecting the possibility that an enterprise not to be able to meet their payment obligations. In this case we can say that the company is in a state of financial difficulty. Status of difficulty of an enterprise is closely related to solvency, this concept reflecting its ability to meet their payment obligations to the business partners. The authors also suggested in this article that on the base of the balance indicators used to analyze the risk to use floating capital, the need for floating capital and net treasury, finally showing where a company is solvent or not.
Keywords: bankruptcy risk, discriminatory analysis and bankruptcy prediction, score functions
1. Introduction The analysis of the causes that have determined the bankruptcy of certain enterprises has revealed their diversity and has, at the same time, fuelled the idea that bankruptcy is not a sudden phenomenon caused by conjuncture, but is determined by the progressive degradation of the financial situation and of the health of the enterprise [10]. Bankruptcy risk is related to the difficult state of the enterprise, considered as a permanent financial crisis situation. From a juridical viewpoint, an enterprise is in difficulty when it is in an
27 Knowledge Based Organization 2008 International Conference arrested payment situation, no longer being able to meet the due debts and, in this case, the law stipulates the reorganisation or dissolution of the enterprise [1].Bankruptcy risk is caused by internal and external causes that will be further explained in this paper.
2. Causes of bankruptcy risk The analysis of bankruptcy cases tends to emphasize the role of two large categories of generating factors such as factors related to the weakness and internal errors and economic environment factors, both categories having a convergent effect in the degradation process. The symptoms of an enterprise in difficulty, as identified by the European Union of Chartered Accountants can be detailed in the following chart:
ENTERPRISES IN DIFFICULTY
SYMPTOMS
at
edits edits
r r c c
manager e the s
r e th the
l funding suppllie r r enewing epaying The existence of a negative working capitaltor of a denied net The impossibility of r The impossibility of r The bankruptcy of clients o Disappeared or unavailabl Using the current credits fo Persistent strikes
Fig. no.1 The symptoms of an enterprise in difficulty
Bankruptcy risk is determined by several causes: a) External causes:Loss or bankruptcy of an important client; Bankruptcy of a key supplier;Bankruptcy of the bank where the
28 Knowledge Based Organization 2008 International Conference enterprise has its main account;Aggressive policy of the competition that leads to the removal of the enterprise from the market;Failure to keep up with the technological change, leading to less competitive products and market removal[3]; b) Internal causes: Inappropriate management in the investment policy, leading to production capacities whose product undergoes several updates as a result of a change in consumer preferences; Operating low productivity machinery and equipment that overcharges the production quality management; Repeated losses in the operating activity; Inappropriate indebtedness policy during unstable economic periods; The study of bankruptcy causes has lead to the conclusion that it is not a brutal phenomenon due to conjectural fluctuations but a result of a progressive degradation of the financial situation of the enterprise as insolvency risk can be predicted a few years before stopping payments [6]. The time degradation of the results of the enterprise, the difficulties it faces (not only of a financial nature), have provided financial analysis with a considerable field of investigation with the purpose of discovering early detection and prediction methods for bankruptcy risk following the difficulties [2]. The importance of bankruptcy prediction and understanding the causes is of a practical and pragmatic nature. The direct costs of bankruptcy (legal taxes, tax payer and lawyer fees, etc) are low as compared to the decrease in value of the enterprise (losses for shareholders and creditors) [8] The complex nature of the aspects implied by the bankruptcy risk concept also accounts for the various diagnosis and analysis models of which we mention: the liquidity-exigibility analysis, the functional analysis, the rate analysis, the financial flow analysis, etc, therefore, bankruptcy risk analysis can be developed in a static manner, using the analysis of the balance sheet financial balances, or in a dynamic manner, using the analysis of the flows depicted in the financing chart [5]. The patrimony static analysis of the bankruptcy risk is concerned with the net patrimony of the shareholders and the economic asset as a whole, as a guarantee for creditors, while the operating instruments
29 Knowledge Based Organization 2008 International Conference used here are the financial working capital, liquidity rates and solvency rates [4]. Working capital (WR) is an important index in estimating the financial situation of the enterprise, representing that part of the permanent financial resources that ensure the funding of the circulating assets permanently renew Publishing House The solvency of an enterprise, according to the patrimony theory, is granted by the balance of the balance sheet masses of the same length, provided two financial rules are observed: Ai ≤ Cp; Ac ≥ Dex Where Ai- is the immobilised asset;Cp- permanent capital;Ac- circulating asset;Dex- operating debts. Patrimony solvency – the extent to which equity capital covers the long term duties and the credits by patrimony elements – must be of over 0,3 and an ascending evolution while a value of under 0,3 is a signal of alert for the funding bank as the enterprise might be quasi- bankrupt. The functional static analysis of bankruptcy risk uses as operating instruments the need of working capital for operations and net treasury, as the insolvency state is reflected by the way in which short- term credits are arrang Publishing House According to this concept, the balance sheet is the sum of fund allocations and their sources classified in different financial cycles (investment, funding, operating), in order to understand the activity of the enterprise [7]. The need of working capital (NFR) and the net treasury (TN) is determined by means of the following equations: NFR=(S+C)-Dex TN= FR-NFR The circulating assets are given by S, representing stocks, and C, representing claims. Let us consider the following example of a retail trading company, whose simplified balance sheet is presented in Table no 1: Simplified balance sheet
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Table no. 1 Asset elements lei value Liability elements lei value
- Fixed assets(Af) 20.000 - Permanent 15.000 capitals(Cp) - Circulating assets( 35.000 - short-term debts (Dts) 40.000 Ac) Total 55.000 Total 55.000 The following situations are established: The medium rotation interval of the stocks is of 2 months;The medium due-date interval for the short-term debts is of 3 months; The company sells and cashes in stocks valued at 35.000lei, paying 2/3 of the short-term debts. The working capital calculated when settling the balance sheet is:FR= Cp- Af = 15.000 – 20.000 = - 5.000 lei. The negative working capital ( -5.000lei ) leads to a financial imbalance.The calculation of the need for working capital leads to the following result: NFR = Ac – Dts = 35.000 – 40.000 = - 5.000 lei. The need for negative working capital demonstrates a release of circulating sources for funding the permanent needs. To be noted is that the financial balance is favourable for a short term. In two months from settling the balance sheet, the company will have sold and collected stocks valued at 35.000lei, paying 2/3 of its short-term debts, i.e. 40.000 * 2/3 =26.666. Therefore, liquid assets of 13.334 lei will be issued, thus changing (for the better) the situation in the balance settlement. This example in numbers is proof of the need to take into account the working capital of the rotation of enterprise capital. The dynamic analysis of bankruptcy risk, developed in the funding chart, starts from the financing flows determined both by the operating activity and by the capital operations (investment and financing) and explains the financial imbalance outlined by the static analysis.
3. Models of estimating bankruptcy risk The calculation of the score function requires the prior awareness of certain rates that help determine the bankruptcy risk of an 31 Knowledge Based Organization 2008 International Conference enterprise and the early protection by correcting measures. A note (Z), called score, is given for the enterprise, representing a linear combination of rates and, varying with the value of the score, enterprises are classified as vulnerable, bankrupt and healthy. Most score functions used to determine the probable bankruptcy state of the enterprise, have used as statistical technique the discriminatory analysis, the latter being highly recommended , especially when we want to extract from the multitude of calculated financial indices, the ones that most clearly explain the bankruptcy risk of an enterprise. Based on specialty literature, this paper will outline the national and international contributions in the field of discriminatory analysis and bankruptcy prediction, also known as the so-called score functions. The procedure used is the statistic technique of discriminatory analysis of the financial features (calculated using rates) of the normal functioning enterprises and of those experiencing difficulties in their economic and financial management [10]. The first research on bankruptcy risk analysis has been developed in the USA in the 30’. The method was called „credit - men” and it aimed at making assessments on the financial situation of an enterprise by means of a synthetic note, thus establishing the position of an enterprise as compared to that of a typical enterprise in the same industry. The purpose of this model was to study risk in credit granting, including an extension of risk analysis by including certain variables linked o the human factor and the global economic environment. The subsequent prediction models are based on the discriminatory analysis which was used for studying the evolution of several enterprises in the field, divided into two categories: with a good and with a difficult financial situation, on a long period and using different rates. The rates considered as significant have been attached to ratios that reflected their influence on the financial situation of the enterprise and, by combining them, came out the score, the Z function, as a liner function of several variables, thus:
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Z = a x R + a x R +….+ R +b 1 1 2 2 n where: a1, a2…. an – medium weighing ratios (positive or negative in order to assess the favourable or unfavourable impact on the financial situation); R1, R2…. Rn – rates (or financial structure, dynamism, management profitableness), taken into account; b - constant (just in case). The score thus established divides the enterprises in the two categories (healthy and vulnerable), sometimes even into intermediate categories. The Conan and Holder model (France, 1979) introduced by the continental school shows the models specific to the sectors of activity have been developed, thus 5 rates have been retained and the function had the following form: Z =0,24 x R + 0,22 x R + 0,16 x R - 0,87 x R - 0,10 x R 1 2 3 4 5
R1= EBE/ Total debts;R2= Permanent capital/ Total asset;R3= Circulating assets (stoks)/ Total asset;R4= Financial expenses/(credit cost)/ Turnover(CA);R5= Personal expenses/ Value added (VA) The enterprise is considered at risk, varying with the score value, as follows (Table no 2):
Table no. 2 Score value Situation of the Bankruptcy risk enterprise Z > 0,16 Very good Lower than 10% 0,10 < Z <0,16 Good From 10% - 30% 0,04 < Z <0,10 Alert From 30% – 65% -0,15 < Z <0,04 Danger From 65% – 90% Z < - 0,05 Failure Higher than 90% The contribution of this function can be found in the decision making rule as the probability of error in classifying an enterprise is higher if the value taken into consideration in the calculation of the function for this enterprise is closer to the decision threshold.
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The Conan-Holder model usually generates important results in predicting the short-term evolution of trading companies. Such a model is accurate only where the bankruptcy rule operates, when the hidden subsidies are cancelled, commercial credit is well managed and where statistics are adequate.
4. Summary Based on specialty literature, this paper will outline the national and international contributions in the field of discriminatory analysis and bankruptcy prediction, also known as the so-called score functions. The procedure used is the statistic technique of discriminatory analysis of the financial features (calculated using rates) of the normal functioning enterprises and of those experiencing difficulties in their economic and financial management.Thus, this paper introduces the main scoring methods for estimating bankruptcy risk, also underlining the main analysis schools, the Anglo-Saxon and the continental school respectively, and also outlining the national development in the field, the contributions of the Romanian school of economic-financial analysis.
References [1] Anghel Ion, The bankruptcy, Bucureşti, Publishing House Economică pp.112, 2002. [2] Bogdan Ionel, Financial management, Bucureşti, Publishing House Universitară, pp.56, 2004. [3] Bostan Ionel,Guidelines in the audit of Risk assessment, Comunicare susţinută cu ocazia Conferinţei, Probleme actuale ale situaţiei social- economice a Republicii Moldova, organizată de Facultatea de Ştiinţe Economice a Universităţii de Stat, pp. 215 ,Chişinău, Republica Moldova, 26 noiembrie, 2005. [4] Bostan Ionel, Company control implementation, în Tehnologii moderne, calitate, restructurare (TMCR), Universitatea Tehnică a Moldovei, pp. 305- 308, Republica Moldova, Chişinău, 19/21 Mai, 2005. [5] Buşe Lucian, The economical and financial analyse, Bucureşti, Publishing House Economică, pp.19, 2005. [6] Cişmaşu Irina, The risk – element in information of the decision, Bucureşti, Publishing House Economica, pp.220, 2003. 34 Knowledge Based Organization 2008 International Conference
[7] Grosu Veronica, Horga Petrică, Consideration concerning IFRS3, Analele Universităţii Oradea - Ştiinţe economice, pp.1359-1365, 2008. [8] Grosu Veronica, Marian Socoliuc, New aspects of taxation system in agriculture, Buletin USAMV-CN, 65(1-2)/2008(-)Cluj Napoca, Romania, octombrie, 2008. [9] Mateş Dorel, Socoliuc Marian, Grosu Veronica, The Planification of an audit of financial situations from the view point of the international standard of audit 300, Analele Universităţii”Ştefan cel Mare” - fascicolul Ştiinţe Economice, Suceava, Romania, 2008. [10] Petrescu Silvia, Analyse and accounting – financial diagnosis, Bucureşti, Publishing House CECCAR, pp.96, 2006.
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COMPETITIVENESS EURO BAROMETER OF E.U. COUNTRIES
Prof Mates Dorel, PhD, Prof. Hlaciuc Elena, PhD, TA Socoliuc Marian
West University of Timişoara, [email protected], ”Ştefan cel Mare” University, Suceava, [email protected], [email protected]
Abstract Recent specialty literature puts an emphasis on the role of creativity as the main factor for growth and competitiveness of a territory. From this perspective, creativity is a main factor in the renewal of various forms of knowledge and development power of new economic, social and cultural opportunities. The objective of this work is to define an integrated model of regional benchmarking, systems used by companies to measure their level of competitiveness to the existing competition. The European Commission has ordered a system of this type known as the Euro barometer, to measure and confront competitiveness towards the strategic objectives established in the Treaty from Lisbon, where are defined the main lines of orientation, in order to make Europe into a knowledge society most dynamic and competitive globally, by 2010.
Keywords:benchmarking;local production systems; competitiveness; local development; knowledge management
1. Introduction The territorial competitiveness is not simply influenced by an easy factors addition. Knowing 80% of the European citizens use an e- mail account and an internet connection is not enough to determine the position and the competitive capability of Europe in the comparison with other countries. The same scenario we have for the companies too. Knowing that 80% of companies in a certain territory 36 Knowledge Based Organization 2008 International Conference is ISO certified is not enough to create a clear picture of the competitiveness of a local productive system. So it's necessary to develop some benchmarking systems able to recognize the value of the interaction and accumulation processes that have been developed in a certain territory and that have been helped to redefine its potential, its competitiveness and its dynamic capability as a continuum process [1]. Following this approach, the territorial competitiveness seems to be the result of the interaction among 3 different factors: a better connectivity, a better conductivity of territorial nets and the variety and the heterogeneity of knowledge and competences at everyone's disposal [3]. The recent fast developments in the field of information and communication technologies are risking the primate of the territory as an ideal place for the creation of new knowledge. The development of a benchmarking system in this way can build the basement to extend the cognitive capabilities of companies and of territorial systems form one side and from the other side it can better perform the capability to plan through a better collaboration between institutions and companies inside a territory and among territories.
2. Economic Agents' Heterogeneity The above remarks demonstrate that the analysis of the relationship between economic growth, institutional dynamics and social dynamics must be founded on the assumption that the economy under scrutiny is inhabited by heterogeneous agents. That is the main reason why traditional theory, based on the representative agent assumption, is unfit to study the relationship between economic growth, institutional dynamics and social dynamics. [5]The reduction of the economy to a representative agent does not allow for an analysis at the individual level of economic variables and thus of both the personal and the functional income distribution. In other words, the strategy of research based on the representative agent assumption ignores, by definition, the role played by the interaction among heterogeneous agents in the determination of the aggregate outcome [4].
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3. Public Sector and International Institutions The neoclassical theory of growth was anticipated by Tobin which assumed public deficit. Tobin (1955) argued that a deficit spending policy financed by a money creation was sustainable in the long-run and had real effects through the variation of the inflation rate[13]. These contributions opened a debate on the super-neutrality of money and stimulated some subsequent contributions on the role of public sector in the neoclassical model of growth and distribution and a large monetary economics literature on the relationship between financial development and economic growth .Barro's contributions assume public balanced budget and biased subsequent literature towards an analysis of the composition of public expenditure and the quality of public interventions, rather then to focus on the effects of the overall dimension of the public sector[2]. Finally, even if "inequality is harmful for growth" (Benabou, 1996c, Perotti, 1996), the debate on the effectiveness of redistributive policies is still open since the effects emphasized by existing literature goes through a modification of structural social parameters, such as the fertility rate, the level of education, political stability, democratic governments formation etc[7]. International institutions, such as the agreements for regional integration, may be the cause of an unfavorable specialization pattern among partners, reduce the long-run growth rate (see Walz, 1997) and determine an uneven distribution of productive activities among partners, thus becoming a main cause of growing inequality among nations (Venables, 2003).
4. Institutional and Social Dynamics In the last fifteen years, following the lead of North (1981 and 1990), many research programmes investigating the links between growth and institutions appeared in the literature, ranging from those whose main objective was the explanation of the creation and development of institutions (Acemoglu, Johnson and Robinson, 2004, and Greif, 2003) to those providing interpretative keys of long-term socioeconomic dynamics merging economic, historical and institutional analysis (Bertocchi, 2006, and Galor, 2005) to those aiming at an integration of growth and development theories (Aghion, 38 Knowledge Based Organization 2008 International Conference
2004).These authors, despite differences in emphasis, generally acknowledge that social and economic institutions exert a significant influence on the determination of the rate and the historical patterns of growth. Moreover, there is a widespread consensus that the relationship between growth and institutions is not characterized by one-way casual links. On the one hand, some contributions have shown that some institutions foster resource accumulation even if they have been designed not for this purpose, while other institutions hinder growth. On the other hand, other contributions have begun to explore a different scenario in which growing economies can shape their own institutions. Nevertheless, there are few points of agreement on specific elements. To make some examples, there is still debate whether institutions are a fundamental source of growth (see Acemoglu, Johnson and Robinson, 2004), whether political institutions and the exercise of political power are endogenous or exogenous to the growth process (see Glaser, La Porta, Lopes-de-Silantes and Shleifer, 2004) and whether it is possible to determine an optimal size and the long-run effects of public institutions when these are endogenous to growth (Acemoglu, Aghion and Zilibotti, 2002; Skaperdas, 2003; Aghion, 2004). Moreover, many scholars have started to study specific institutions and their growth-enhancing role.Other strands of literature have, instead, highlighted the effects of market imperfections on agents' incentives to the accumulation of production factors (e. g. Banerjee and Newman, 1993), the inefficiencies induced by property rights uncertainty (e. g. Tornell and Velasco, 1992; Grosmann and Kim, 1996; Tornell and Lane, 1999), and, in general, the role played by institutional imperfections in underdeveloped countries and transitional economies (Dixit, 2004).Strictly tied with the issue of institutional dynamics is the issue of social dynamics. A thorough analysis of the relationship between growth and institutions requires an in-depth analysis of the relationship between institutions and individuals and an analysis of the relationship between growth and social dynamics. Though the concept of social dynamics encompasses a variety of issues, a shared belief in the literature on social dynamics is the following: individual choices are influenced by other people choices 39 Knowledge Based Organization 2008 International Conference not only indirectly, namely through the market mechanism,, but also directly through processes of imitation and of learning, of social pressure and exclusion, of diffusion and interpersonal exchange of information, and, more generally, through externalities operating outside market mechanisms (see Durlauf, 2004, and Moretti, 2004, for two recent reviews).After Loury's 1977 and 1981 seminal papers, some authors (such as Benabou, 1996a, 1996b; and Durlauf, 1996a, b; Fiaschi and Marsili, 2004) have elaborated models where social interaction among individuals belonging to the same local community influences the process of accumulation of human capital within the given community, the rate of growth and contributes to generate social stratification and a greater and persistent level of inequality. Another important channel through which social dynamics influence income inequality and economic growth is the individual search for social prestige. Corneo and Jeanne (1999 and 2001) assume that social status depend on relative wealth and demonstrate that, in the absence of information asymmetry on the true distribution of wealth, more equal distribution leads individuals of low- and medium-income classes to accumulate more wealth in the effort to emulate high- income classes, inducing, therefore, a positive relation between equality and growth. Hopkins and Kornienko (2004) argued instead that, in the presence of information asymmetry on the true distribution of wealth, social status is achieved through positional goods consumption, which implies a negative impact on wealth accumulation, particularly for low- and middle-income classes; more equality, therefore, may be an obstacle to growth.
5. The role of knowledge and technological change One of the main channel through which institutions influence the growth process is represented by the production of knowledge and technological change. In modern societies research is carried out by a variety of institutions (Universities, public and private research institutes, foundations etc.) which finance, organize and address the research activity of individual scientists and select the results of scientific work.The territorial competitiveness theme has occupied a central rule in the economic discussion starting from the Porter's contribute about the nation competitiveness (Porter, 1990). 40 Knowledge Based Organization 2008 International Conference
In this work Porter clearly recognizes the insufficiency of the categories traditionally considered as the base of a company competitive differential and he suggests the need to look at the territory as a place where the competitive capabilities of companies will create and develop. But the strategic rule of the territory was already widely recognized by Marshall in his work about the economic principles where, referring to the English industrial districts at the end of the century, he suggest that the organization of an industry in a territorial dimension is a clear competitive alternative to the vertical organized companies. These authors identify the principle source of the competitive advantage for local firms in the specific combination of society, economy and culture [6]. Belonging to a common territorial context produces, in certain condition, an acceleration of the interaction and retroaction processes that are the basement for the new knowledge growing[12].The recent literature has shown that the capability to valorise the added value hidden inside the information and communication technologies depends on the quality of human capital. This aspect represents the principal organizational barrier for the small and medium enterprises (and territorial system of production) in the access to the potentialities hidden in these technologies inside their own processes of growing[14]. With respect to this macro-object we have decide to focus on four major sources of territorial competitiveness: the role of creativity as the principal factor of competitiveness for companies and for a territorial system. In this assumption the rule of creativity is conceptualized starting from the wider category of the culture economy and of the knowledge. In this perspective the creativity represents the principal factor to renew the diverse form of knowledge and to sustain the development of new economic, social and cultural opportunities. The creativity is defined as a multidimensional source where it's possible to integrate diverse economic forms: creative, technological, cultural and artistic). The key factors at the base of creativity are three: the talent, the technology and the tolerance (3T) (Florida, 2002).[8] The individual talent is at the base of the different processes of technology creation and innovation. The technology is the tool used by this concept both to express itself and to develop. The 41 Knowledge Based Organization 2008 International Conference tolerance is at the base of the acceptation of the reciprocity diversity and so it becomes a social and cultural open-view guarantee. In the prospective proposed by the paper unit of Florence the city represents the ideal place where the three creativity dimensions find a wider space in the terms of interaction, development and sedimentation. The first one, defined "collective learning" has a strong territorial base because it's clearly connected with the processes of learning by doing and learning by localizing that have the precise purpose to transfer tacit knowledge (knowledge based on experience accumulation)[9]. The second learning form has a cooperative nature: this one requires the will of both actors to participate and collaborate in the creative process [10]. The knowledge that is transferred with this exchange model is largely codified and it's based on sharing a common language and common trusting rules [8]. Finally, these last learning processes pass over the boarders of the single territory and it can be developed by the interaction among companies and institutions belonging to different territories. This result cannot be considered as a consolidate goal for two main reasons. The first one is concerning the limits of this approach in the explanation of the existence of different levels in learning capabilities among local productive systems. The second one is about the weakness of contributes on a quantitative prospective (micro-level) about the capability of a productive system to learn [11]. The relationship between strategic and marketing planning and capacity and territorial development. The aim is to identify how the process and the quality of regional strategic and planning capacity impacts on the competitiveness of regions.
6. Summary An information and communication technology permits to sustain the processes of production and development of social capital that is the base of competitiveness of a territorial community. So far literature has focused on potential and opportunities actions only. In other words the majority of the authors have focused on the technical specifications of technology tools and they have looked for deriving from this which is the potential consequences for the territorial competitiveness. We believe it's necessary to look at the specify 42 Knowledge Based Organization 2008 International Conference morphology of the knowledge net trying to determine first the competences embedded in a territory, then the distribution of the weight players and finally the specific strategic paths used to understand the competitive potential hidden in the development of these technologies. The first one is the impact of these technologies on the relational capability of a territory. Does the development of these technologies look at getting slower or faster the development of the social capital in a certain territory? If yes, which are the conditions? While the second looks at the relationship between e-governance and environment quality as a purpose. The quality of the institutional environment is considered one of the principal factors of the competitiveness of a specific territory.
References [1] Avgerou, Crisanhti, Information Systems and Global Diversity, Oxford University Press, pp.15, Oxford, 2002. [2] Baptista Rene, Do innovations diffuse faster within geographical cluster? International Journal of Industrial Organization, 18 pp.515-535. [3] Bathelt, Harald, Malmberg, Anders, Maskell, Peter, Clusters and Knowledge: Local buzz, global pipelines and the process of knowledge creation, Progress in Human Geography, 28 (1) pp.31-56, 2004. [4] Bostan Ionel, Investigaţii financiare, Ed. Tipo Moldova, Iasi, pp.152, 2007. [5] Bostan Ionel Socoliuc Marian, Implications of fiscality over accounting in agriculture Bulletin of University of Agricultural Sciences and Veterinary Medicine , Edited by AcademicPres, Cluj Napoca,Romania vol 65(2), Edited by AcademicPres, 2008. [6] Brown John Seely, Duguid Paul, Local Knowledge. Innovation in the Networked Age, Management Learning, Vol.33 (4): 427-437, 2002. [7] Cooke Patrick, New economy innovation systems: Biotechnology in Europe and the USA. Industry and Innovation, pp.30-46, 2001. [8] Florida, R., L’ascesa della nuova classe creativa, Milano, Ed. Mondatori, pp.158, 2002. [9] Gargiulo Richard, Benassi, Marco, Trapped in your own net? Network cohesion structural holes, and the adaptation of social capital. Organization Science 11, pp. 183-196, 2000. [10] Giuliani Elisa, Laggard clusters as slow learners, emerging clusters as locus of knowledge cohesion (and exclusion): a comparative study in the wine industry. Working Paper, LEM, Sant’Anna School of Advanced Studies, 2004. 43 Knowledge Based Organization 2008 International Conference
[11] Grandinetti Robert, Conoscenze, relazioni e identità collettiva nei processi evolutivi dei sistemi distrettuali: riflessioni su alcuni casi del Nord-Est, in Il Sple Editore, Torino, pp.197, 2002. [12] Grosu Veronica, Horga Petrica, Consideration concerning IFRS3, Analele Universităţii Oradea, p.1359-1365,Oradea, Romania, mai, 2008. [13] Grosu Veronica, Marian Socoliuc, New aspects of taxation system in agriculture, Buletin USAM-CN, 65(1-2)/2008(-), pp.63-68, Cluj, Romania, octombrie, 2008. [14] Mateş Dorel, Socoliuc Marian, Grosu Veronica, The Planification of an audit of financial situations from the view point of the international standard of audit 300,Analele Universităţii”Ştefan cel Mare”- fascicolul Ştiinţe Economice, vol.III, pp.213, 2008.
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WIND POWER – AN ALTERNATIVE FOR THE INCREASING EUROPEAN CURRENT ENERGY NEEDS
Assoc. Prof. Ilie Georgeta, PhD
“Dimitrie Cantemir” Christian University, Bucharest, [email protected]
Abstract The purpose of the article is to emphasize the main characteristics of the wind energy development mainly in EU countries, and particularly in Romania. The paper starts with an overview on the dimensions of the key problems of current energy crisis. Then, in this context, there are discussed: the evolution of wind energy capacities, the benefits of wind power, the main regulation directions for supporting the development of wind energy capacities. The paper concludes by illustrating the new destination for the EU investors in wind energy capacities in Romania.
Keywords: wind energy, benefices, regulations, EU countries
1. The necessity of developing the wind power capacities Energy is one of the most important supports of our every day lives and economies. It also has become one of the biggest challenges Europe faces. Climate change, security of supply, energy independence and sustainable economic growth are now all major problems worldwide. Wind power is a form of renewable energy. The renewable sources of energy are the only resources that will be unlimitedly found in the foreseeable future. It is stated that it can solve the great problem regarding the huge energy needs considering that now Europe is an energy intensive region, and it relies greatly on imports. Already
45 Knowledge Based Organization 2008 International Conference nowadays, the EU imports 50% of its energy needs and this figure is increasing. By 2030, oil imports are expected to increase from 76% in 2000 to 88% and gas imports from 50% in 2000 to 81%. Therefore, wind energy could be a very good source of energy that will be able to cover the future energy needs. Furthermore, it is stated that wind energy generates economic growth, providing income, wealth and technological leadership in Europe.
2. Comparative evolution of wind power capacities The wind energy sector is flourishing. Between 2000 and 2007, the wind power has increased from under 1% to 4% in the EU’s electricity supply. 40% of the entire new capacity in the EU in 2007 was represented by the wind energy, whereas the coal and nuclear decreased considerably. These figures reflect the new energy theory, in which wind energy has turned from an ‘alternative’ into a common power source, increasing on a yearly basis, with new competitors in America, Asia and Europe.
100000 80000 60000 40000 20000 0 -20000 natural large wind other biomass nuclear coal fuel oil gas hydro
pow er capacity 76641 46856 2299 1795 1655 -5871 -11027 -14385
Figure 1: Net increase/decrease in EU power capacities, between 2000-2007, (in MW) [2]
Wind Energy benefits from real and effective power market competition. In March 2007, EU leaders agreed to a target of 20% of energy coming from renewables by 2020. According to the European Commission, this means that 34% of EU electricity is required to come from renewable sources. With strong and ambitious legislation,
46 Knowledge Based Organization 2008 International Conference wind energy could supply 12-14% of EU electricity by 2020, up from 3.7% in 2008. It would represent approximately 49% of average EU homes 107 million in total getting their electricity from wind power. In 2007 there were five EU countries – Denmark, Spain, Portugal, Ireland and Germany – which covered more than 5% of their energy demand with wind energy. Spain was considerably the largest market for wind turbines with 3,522 MW, followed by Germany with 1,667 MW, France with 888 MW and Italy with 603 MW. Eight countries – Germany, Spain, Denmark, Italy, France, the UK, Portugal, and the Netherlands – now have more than 1,000 MW installed. The three pioneering countries of wind power - Germany, Spain and Denmark - are home for 72% of the EU's installed wind power capacity. That share is expected to diminish to 62% of installed capacity in 2010.
3. The benefits of wind power Europe is an energy intensive space, which depends greatly on imports. It is obviously indispensable that countries diminish their import dependency, a hard step which can be greatly facilitated by taking energy efficiency measures and installing capacities based on renewable energy sources. Energy sources such as wind are original and free, with predictable costs, and provide a valid solution to these problems. Wind power is an important future alternative for the reduction of the CO2 emissions. Wind power generates no emissions, and displaces carbon and other greenhouse gases that would otherwise be emitted by fossil fuel-fired electric generation. In 2007, the clean generation provided by wind displaced the emissions of approximately 28 million tons of carbon dioxide. Looking at a scenario of 20% wind energy by 2030, the U.S. Department of Energy lately has reported that wind energy could keep away from 825 million metric tons of CO2 annually by 2030, 25% lower than expected electric sector emissions by 2030. This is equivalent to taking 140 million vehicles off the road. Another related study concluded that the 20% wind scenario would reduce natural gas costs to consumers by up to 214 billion USD
47 Knowledge Based Organization 2008 International Conference and would lower the cost of conformity with climate legislation by up to 145 billion USD. In today’s electricity investment environment, the two biggest risk factors are the uncertainties related to the future cost of emitting carbon (most critical for coal power investments) and the future fuel prices (most critical for gas power investments). As a global leader in the wind energy sector, Europe benefits from the employment generated by this power source. The European Wind Energy Association (EWEA) uses a figure of 150,000 wind energy related jobs in the EU altogether. In Spain, a total of 35,000 jobs related to wind have been created so far, and 80,000 in Germany. According to the EC funded MITRE (Monitoring and Modelling Initiative on the Targets for Renewable Energy) project report, this could more than double by 2020, providing 368,000 new jobs in Europe. Wind applications in rural areas have a particularly significant impact, not only creating new jobs, but improving community income through local and state taxes and through land revenues, which can then be used to finance social services. With thousands of jobs in the renewable energy industry, and strong rural development benefits as well, renewables contribute to economic development, energy security, and local environment, as well as climate improvement.
4. Investment Wind power now receives the largest share of investment annually of any renewable energy technology, even more than large hydropower. Wind power has continued to grow at 25-30% per year since 2000. In 2007, the cumulative capacity of wind power reached 93 GW up from just 7.5 GW in 1997. In order to have a complete image of these figures, the total global power capacity is on the order of 4,300 GW. Altogether the new renewables (small and large hydropower and biomass power, geothermal power, grid-tied solar PV) now provide 1240 GW of electric power capacity. In Europe, Germany and Spain continue to focus the majority of investments on wind power. In 2007 these two countries represented 61% of the EU market. However, the investors tend to reduce their 48 Knowledge Based Organization 2008 International Conference funds on Germany and Spain projects. Between 2000 and 2007, the European wind power capacities installed outside Germany, Spain and Denmark reduced from 468 MW to 3,362 MW.
5. Obstacles in the way of the Renewable Energy As we have seen above, wind energy has grown significantly recently. In spite of the sustained boom in wind energy of the last few years, in Europe, there were a lot of restrictions in the way of this evolution. So, the investors have to overcome certain challenges if they want to take advantage of the potential of wind power. Application processes for wind farm projects are often long, complex and full of bureaucracy and administrative procedures to get through before wind turbines can start off generating power. They should be made comprehensible, as summarized in the European Commission’s draft Renewable Energy Directive and emphasised by many concerned individuals in their statements or reports. Even though wind energy is now technically mature, it uses a power system that was designed and built over a century ago for traditional fuels and other forms of power technology. The operational wind farms confront with a limited access to the electricity grid. The infrastructure needs to be restructured to adapt offshore and onshore wind energy. There also has to be built and put in place further transmission lines and better interconnections. Over half of wind farm projects never overcome the planning stages and become operational. According to the European Commission, another reason why the wind energy market is no competitive is the grid is dominated by integrated power companies. The grid is monopolised by companies which control both production and transmission. The European Commission sustains the proposals to further liberalise the energy market in order to overcome one of the most obvious distortions limiting competition in the European power markets. The effective and fair competition in the European electricity markets depends on the separation between production and transmission of electricity, so-called ownership unbundling. Full ownership unbundling is essential if fair competition in the power market is to be attained.
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These barriers are the main institutional and structural deficiencies which obstruct new technologies such as wind power from entering the market.
6. Policies to encourage renewable energy Renewable energy will play a "vital role" in creating the sustainable communities of the future. Policies to encourage renewable energy have proliferated over the past few years. Objectives for future shares or amounts of renewable energy now are present in at least 58 countries worldwide, including all EU countries, US and Canada and a few developing countries. The European Commission White Paper on Renewable Energy Sources sets out a comprehensive strategy and action plan to achieve the ambitious objective of doubling the renewables’ share of the European Union’s total energy supply, from 6 per cent to 12 per cent, by 2010. The strategy’s main features are: the reinforcement of policies, such as agricultural and rural policy, regional policy, and internal market measures in the regulatory and fiscal areas, affecting market penetration of renewables; the reinforcement of co-operation between EU member states together with measures to support investment and information dissemination. This is essential to the security and diversification of energy supply in the future, environmental protection and social and economic cohesion. In order to reach the target of 12 per cent set out in the White Paper, the Commission’s Green Paper on Energy Security of Supply has implemented several directives as part of its renewables policy, which include: the Directive on the Promotion of Electricity from Renewable Energy Sources (so-called the Renewables Directive), which has a target of 22 per cent of electricity from renewables by 2010; the Directive on Energy Performance in Buildings, which aims to exploit the 20 per cent savings potential in the building sector, which represents 40 per cent of the total energy consumption in the EU.
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7. Wind power in Romania The interest for electricity is increasing worldwide and, implicitly, in Romania, in particular resulting from renewable resources, whether the wind, solar or biomass. Although we can say that Romania is at the beginning of this way, it has a great potential that makes us to believe that there are further perspectives for development not at all negligible. In Romania, the share of energy generated by wind turbines in the total energy produced at the national level from all sources is 0.06%, compared to Denmark 25%, Spain 8% and Germany 6%. However, the land is not yet unexplored. Thus, some of the companies currently active in the market have already completed tests on the essential details of such activities. It is testing the wind speed, solve problems related to land ownership where will be installed turbines, in addition to steps the authorities to regulate these activities. Declarations of lately linked investment intentions on the wind energy in Romania announce a real race between projects. Thus, Dobrogea and Moldavia seem too small for tens of wind energy projects. In 2008, both Western Europe companies with experience in the production of electricity, and Romanian companies have announced their intention to increase their investments in wind energy projects. The current explosion of investment projects in energy can be explained in part by a decrease or stagnation of the real-estate market and investors need to find a new market with good yields where to place their money, and on the other hand by the fact that these investments are, especially at this stage, a kind of real estate investment. The second explanation is reinforced by the fact that in the initial phase, Romanian business people, even if they do not know details about the construction and operation of wind parks, these investors can assure a good base and to obtain in advance the access permits to the network, which are limited. Given the advantages of this energy source, this market has become extremely attractive and active on the segment of mergers and acquisitions. Iberdrola Renovables, the renewable energy division of the Spanish company Iberdrola, has concluded an agreement for the takeover of about 50 projects for wind parks in Eastern Romania, with 51 Knowledge Based Organization 2008 International Conference a total capacity of 1,600 MW, for a maximum of 300 million euro. The plants are owned Eolica Dobrogea AG, a division of Swiss engineering technical NEK and Rokura Romanian company from Bucharest. The projects are in various stages of development, and the first capacity could begin production in 2009. Enel, through its subsidiary Enel Investment Holding, took over in October 2007 Blue Line Impex from Bistrita, Romania. Blue Line owns the rights to develop wind energy projects in Dobrogea region, with a capacity of future potential 200 MW in total. The projects are in the process of development and are projected to become operational in 2010. Enel made an important step in building a position in the renewable energy sector in Romania, according to company strategy. Enel intends to develop other projects in renewable energy in Romania in the following years, if there will be opportunities in this regard. Approximately 150 turbines with a capacity of 375 MW will be installed in Central and Eastern Europe by Good Energies, a global investor on renewable energy market. Good Energies focuses on investments in solar energy, wind energy, environment and buildings management of energy consumption, together with Continental Wind Partners. Continental Wind Partners is an important developer in wind power in Poland, Romania and other countries in Central Europe. Representatives of Continental Wind Partners say it aims to install 600 MW in 2008 as the first stage (the first of a series) will begin to be delivered in 2009. In addition to investors who have announced their intention to invest in Romania, local investors are very attracted by wind energy opportunities. The future will show us the extent of these intentions will be completed. In addition, our country must comply with European standards in the field, under which the share of energy from renewable resources in the total power should reach 8.3% in the period 2010-2012.
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References [1] EU Renewable Energy Policy, http://www.berr.gov.uk [2] Pure Power - Wind Energy Scenarios up to 2030, European Wind Energy Association, http://www.ewea.org [3] Renewable Energy Policy Network for the 21st Century, http://www.Ren21.net [4] Wind Power Development Strategies in Europe, 2008-2020, http://www.emerging-energy.com [5] http://www.windday.eu
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THE TOURISM DEVELOPMENT AND THE CLIMATE CHANGE
Assoc. Prof. Nicula Virgil, PhD
“Lucian Blaga” University of Sibiu, [email protected]
Abstract Tourism and leisure are based on a range of activities that, in large part, take place outdoors. Weather conditions and their changes in the short term are important for tourism, as they also are for leisure activities practised close to home. The interrelation between tourism, leisure and travel on the one hand, and meteorology in the broad sense, on the other hand, is not limited to the short term. The interactions between tourism development and climate change are of different nature; they constitute a complex web of relationships, consisting as they do, like climate change itself, of phenomena that are part natural, and also partly the result of human behaviours. A diversification of the tourism products offered, based on a broadened range of outdoor and indoor activities, generally constitutes the best possible response in order not to be overly dependent on the vicissitudes of climate. But this is a long term project that must be anticipated and carefully prepared beforehand; it is not easy to see this through successfully, because it entails, all at the same time, modifying economic circuits, introducing new technologies, carrying out an intensive training effort, investing for the creation of new products, lengthening the season, and above all, changing the minds of public authorities, entrepreneurs, host communities and tourists.
Keywords: tourism, climate change, human behaviours, durable development, outdoor and indoor activities.
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1. Introduction There are few activities that are as dependent on meteorology and climatology, that is to say, both the prevailing weather and long-term climate changes, as tourism. Tourism and leisure are based on a range of activities that, in large part, take place outdoors. Generally speaking, tourism loves good weather – and tourists as well! Weather conditions and their changes in the short term are important for tourism, as they also are for leisure activities practised close to home. The quality and reliability of forecasts have improved considerably over the course of the past years, and weather predictions are now also valid for a longer period of time ahead, which allows everybody, whether tourists or leisure industry professionals, to better plan their activities in advance. Meteorology is no longer a game of chance, and the tourism sector is one of the primary beneficiaries of this development. Nevertheless, the interrelation between tourism, leisure and travel on the one hand, and meteorology in the broad sense, on the other hand, is not limited to the short term. Both sectors have another area of concern in common: that of the evolution of climate over the long term. For the very long term, there is a lack of points of reference, and when they do exist, they are sometimes surprising. But the direction of recent change is clear, and the phenomenon of acceleration of the last period is incontestable. It can only become more amplified.
2. Warming, a central challenge for the tourism industry The Intergovernmental Panel on Climate Change (IPCC) has just confirmed, at its meetings held in January-February 2007 in Paris, what awaits us with near certainty: a rise in temperature caused by human activity on the order of 1.8 to 4 degrees between now and the end of the century, taking the respective midpoints of the IPCC’s most optimistic and most pessimistic scenarios. The ranges are still wide, but the change, unfortunately, is inevitable. Even if greenhouse gas emissions were to suddenly cease – something that no one can really expect to happen – the inertia of the system is such that warming will continue for several decades, given the volume of 2 what has already been released into the atmosphere. 55 Knowledge Based Organization 2008 International Conference
The tourism and leisure industry therefore finds itself absolutely obliged to cope with the prospect of a significant warming of the climate over the long term. This is no minor problem since it concerns a considerable sector of the world’s economy and society: according to the World Tourism Organization (UNWTO), 842 million people travelled to a country other than their own during 2006 (the equivalent of the population of Africa); they spent over 500 billion dollars at their destinations, and that is without counting airline transport receipts or taking into account domestic travel within each country. Tourism has become one of the biggest categories of international trade, generating receipts that represent (including air transport) 40 per cent of trade in services. Thus, even if the warming trend could be brought under control and slowed down, it is very much a major challenge that, under all hypotheses, awaits not just the tourism industry, but also through it, the world economy as a whole.
3. Interactions between tourism development and climate change The interactions between tourism development and climate change are of different nature; they constitute a complex web of relationships, consisting as they do, like climate change itself, of phenomena that are part natural, and also partly the result of human behaviours. It is possible to identify four major types of such interaction. The most visible are the immediate – and sometimes severe – impacts of weather phenomena caused by warming: the destruction wrought by floods, storms, or fires, glacial lake overflows, the disappearance of beaches. Then there are the indirect or longer term impacts resulting from a substantial and lasting alteration of the environment at tourism destinations that reduce their attractiveness (polluted waters, receding forests and decreased biodiversity, retreating glaciers and snow caps...). Some effects of this kind are indirect: for instance, rising temperatures in humid regions encourage the proliferation of insects and the spread of contagious diseases that may well affect visitors.
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A third type of impact has to do with lifestyle changes caused by climate change (reorientation of tourism flows both in winter and summer). Lastly, the efforts of individuals and public policies aimed at attenuating the effects of warming also induce an entire series of consequences for tourism activity (adoption of new, more energy efficient technologies, increased transport costs, product diversification efforts aimed at prolonging the season and reducing vulnerability). These interactions of different nature will appear in the background of the following description, which, for the sake of clarity, is structured around a typology of major problems and types of destinations. Tourism is already – and it will be more so in the future – the victim of the imminent changes; but it is also partly the vector of such changes. Tourism is, first and foremost, an undeniable victim. True, the outlook in this regard is not all negative, and it is plausible, for example, that certain seaside destinations will be able to extend their season, given the fact that higher water and air temperatures will make beach tourism possible during periods when it has hitherto hardly been practised (on the Black sea, since the beginning of May to the end of September). The development of rural, or even seaside tourism could be benefited in the northern regions of Romania. It is therefore vital for tourism destinations, in mountain regions and elsewhere, to anticipate these coming changes and to draw their consequences, starting now. Partial responses exist. Alternatives can be proposed in many cases. A diversification of the tourism products offered, based on a broadened range of outdoor and indoor activities, generally constitutes the best possible response in order not to be overly dependent on the vicissitudes of climate. But this is a long term project that must be anticipated and carefully prepared beforehand; it is not easy to see this through successfully, because it entails, all at the same time, modifying economic circuits, introducing new technologies, carrying out an intensive training effort, investing for the creation of new products, lengthening the season, and above all, changing the minds of public authorities, entrepreneurs, host communities and tourists. 57 Knowledge Based Organization 2008 International Conference
In the space of two generations, the “leisure civilization” has, in many regions that are now tourism oriented, replaced the old rural order, and, with this upheaval, prosperity has taken the place of precariousness. It is not so easy to make a second economic and cultural revolution happen in such a relatively short span of time when measured on the scale of the history of these communities; it is not a simple matter to get those who have just managed to reach a certain level of affluence to admit that they must be able to question and profoundly alter their way of life. In these conditions, and given that the movement of warming is not linear, each phase of remission revives hope and becomes a pretext for inaction, even if everyone is well aware deep inside that the former can only turn out to be illusory and that the latter is tantamount to burying one’s head in the sand while the problem inevitably grows larger. Tourism appears then, as we have just seen, first and foremost as a victim; but it is also a non negligible vector of the changes that are taking place; it contributes, through its very existence, and – it must be recognized – through its own excesses, to the warming process. The tourism and travel industry therefore has its part to contribute to the international community's effort to stop climate warming. It is regrettable in this regard that, outside of the Djerba Declaration of the UNWTO, the problem has yet to be addressed from an overall perspective on the part of specialists. Indeed, in the Fourth Report of the IPCC, aimed at providing recommendations to governments on the proper measures to mitigate the impact of climate change, tourism as such is not mentioned, whereas transport does appear in it alongside energy, the habitat, industry, agriculture, forests and waste. It is the UNWTO's conviction that the mitigation potential is especially high in the tourism industry, because efforts to lower its energy consumption are still in their infancy and have hitherto been undertaken without a global vision. Furthermore, the expected growth of this sector justifies that it be given particular attention. Within certain limits, alternative solutions can be proposed to reduce the sector's contribution to the greenhouse effect, especially in the area of transport. A certain number of interesting solutions are currently on the table to reduce the contribution of tourism and transport to warming.
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4. Conclusions Tourism – business and leisure travel is a significant global industry making positive contributions to growth, trade and development. Thus there are climate related risks for tourism: directly through climate variability and changing weather patterns affecting the planning of programmes and daily operations, and even health and safety; and indirectly by altering the natural environment that represents both a key attraction and basic resources for tourism. Such developments require adaptation, with medium and long term planning by the industry to minimize the impacts and to adjust in the best ways possible to the phenomenon. This is most important where tourism is a source of development support and local community wellbeing in poor countries. At the same time, UNWTO recognises that tourism contributes to the causes of climate change and the consequent need for mitigation. While concerns about tourism’s polluting effects cover all aspects of a tourist’s activity, the primary issue regarding climate change factors relates to the Greenhouse Gas emissions in the sector. Current best estimates are that in 2005 tourism (domestic and international) contributed approximately 5 per cent to global emissions of carbon dioxide and a little less than that in terms of radiative forcing. This is primarily generated through consumption by travellers of transport services (accounting for an estimated 75 per cent of the tourism contribution) and energy consumption in tourism establishments (like air conditioning, heating and lighting in hotels). The tourism sector has a responsibility to minimise harmful emissions by encouraging sustainable, carbon neutral transport solutions and low carbon market destination combinations, to improve the use of natural resources (water, energy) and to contribute to the conservation of natural areas. Tourism, like other sectors is capable of substantial reduction in its carbon emissions as a result of applying new technologies; for example, accommodations and restaurants can apply renewable energy (solar and wind); land transport can use cleaner energy and hybrid engines; aviation can benefit from technologies that shorten air routes and improve descent procedures and fuel consumption. 59 Knowledge Based Organization 2008 International Conference
Whatever the environmental outcome, tourism cannot be seen in isolation. Major changes in the pattern of demand will lead to wider impacts on many areas of economic and social policy such as, for example, in employment and labour demand and in regional policy issues such as housing, transport and social infrastructure. Given tourism’s significant catalytic impacts across the economy as a whole, knock-on effects will impact other sectors, such as agriculture supplying tourism demand, handicraft industries, local small business networks, financial services and so on. There is need to ensure that the poorest countries, for which tourism can be fundamental to development, are capable of playing their part in the process of adaptation and mitigation, as well as benefiting from new technologies. This will require new sources of financing as well as refocusing existing sources to support climate related initiatives. The diverse impact is reflected in the broad network of cooperation by UNWTO on environmental issues with both the public and the private sectors.
References [1] Gössling, S., Global environmental consequences, of tourism, Global Environmental Change 12, 283302, 2002. [2] Peeters, P. et al., Major environmental, impacts of European tourist transport, J. Transp. Geogr., 2007. [3] Gössling, S., et al, Voluntary Carbon Offsetting Schemes for Aviation: Efficiency, Credibility and Sustainable Tourism, Journal of Sustainable Tourism Vol. 15, No. 3, 2007. [4] www.cdmgoldstandard.org [5] www.fightglobalwarming.org
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THE EXCHANGE RATES VOLATILITY IN ROMANIA AFTER THE EU ADHESION
Assoc. Prof. Nistor Costel, PhD, Asst. Prof. Ştefănescu Răzvan, PhD, Asst. Prof. Dumitriu Ramona
“Dunărea de Jos” University, Galaţi, [email protected], [email protected], [email protected]
Abstract The volatility of exchange rates is an important factor for the international business and for the monetary stability. In the case of Romania, the adoption of euro is conditioned by the exchange rate stability. Two years before the European Union adhesion, the National Bank of Romania replaced the exchange rates stability with the inflation targeting as main objective for the monetary policy. Until the adhesion, in comparison with other countries from the East of Europe, the Romanian exchange rates were quite stable. Based on the descriptive statistics and on a GARCH model, we analyze in this paper the volatility of Romanian exchange rates after the adhesion. We find out that the volatility increased and this fact could be connected with the high sensitivity of Romanian financial markets to the external influences.
Keywords: Romanian Exchange Rates, GARCH Models, Volatility
1. Introduction In the last decades, the financial markets volatility became an important aspect in domains such as: risk management, investment decisions, assets valuation and monetary policy making. As a consequence, the volatility research was amplified and several models were elaborated. In 1982, Engle created the Autoregressive and Conditional Heteroskedastic (ARCH) Model, by approaching heteroskedasticity as a variance [6]. His work was extended by 61 Knowledge Based Organization 2008 International Conference
General Autoregressive and Conditional Heteroskedastic (GARCH) Model proposed by Bollerslev [3]. In the next years this class of models was diversified by the appearing of new variants such as Exponential GARCH (EGARCH), Threshold GARCH (TARCH), Factor ARCH (F-ARCH), Augmented ARCH (AARCH), Asymmetric GARCH (AGARCH), Multivariate GARCH (MGARCH) etc. In the present, the Romanian financial markets volatility is increasingly important due to some recent evolutions. In the last years, Romania became very attractive for the foreign investors. As a result, significant foreign capitals came into Romania, affecting directly the exchange rates. The adhesion to EU imposed new challenges for the monetary policy. As a New Member State (NMS) of the EU, Romania has to adopt euro in the future and that is conditioned, according to the Maastricht Treaty, by the exchange rates stability. In the early 1990s, Romanian national currency experienced frequent and high devaluations due to the consistent trade deficits and the high inflation. In this context, the National Bank of Romania (NBR) adopted the exchange rate as the main anchor for conducting the monetary policy. After a significant decrease of inflation, the high real rates of interest attracted considerable foreign capitals that contributed to the national currency strengthening. In 2005, NBR explicitly replaced the exchange rates stability with the inflation targeting (IT) as the main objective for monetary policy making. In the new context, the Nominal Effective Exchange Rates RON/EUR (NEER) experienced a significant decreasing until the Romania’s adhesion to EU at the beginning of 2007. The evolution was quite regularly. Stavarek (2008) found that in the period May 2004 -December 2006 the Romanian national currency was the least volatile among the new EU member states and candidate countries currencies (volatility was evaluated based on the coefficient of variation) [11]. After the adhesion to EU, the national currency continued to strengthen in the first half of 2007. In the second half, NEER experienced an almost continuously increase, followed in 2008 by a new strengthening (see Figure 1).
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Figure 1: Evolution of monthly Nominal Effective Exchange RatesRON / EUR (NEER) January 2004 – July 2008
In this paper we study the Romanian exchange rates volatility after the adhesion to EU. For this purpose we use the descriptive statistics and an ARCH model with the values of NEER after the adhesion.
2. Literature Review Engle and Patton (2001) approached some features that should be incorporated in a volatility model. First, volatility shocks today will influence the expectation of volatility many periods in the future. Second, there is a normal level of volatility to which volatility will eventually return after periods of high and low intensity. Third, the innovations may have an asymmetric impact on volatility. Fourth, the exogenous variables may influence the volatility [5]. The utility of ARCH analysis in the study of volatility, in comparison with other models, was demonstrated by Ashley (2008) [1]. Johnston and Scott (2000) highlight the application of GARCH models in the analysis of exchange rates evolution [8]. Some studies revealed the particularities of exchange rates evolution in the emerging markets [9]. Stavarek (2006) found that NMS which started the participation to ERM II experienced lower exchange rate volatility than the others [10]. Chmelarova and Schnabl (2006) proved that in the countries with underdeveloped capital markets the interventions were much intense and more frequently than in the countries with developed capital markets [4]. Bahmani -Oskooee and Kutan (2006) found that devaluation was practiced frequently in the emerging markets [2]. Fidrmuc and 63 Knowledge Based Organization 2008 International Conference
Horvath (2006) discovered that despite their official policy of free floating and inflation targeting, NMS still acted to reduce volatility of the exchange rates [7]. Stavarek (2008) revealed the symptoms of asymmetry in exchange rates from most of the NMS [11].
3. Data and Model Specification In our analysis we use daily values of the Nominal Effective Exchange Rates RON/EUR (NEER) from January 2007 to August 2008, extracted from the NBR database (see Figure 2).
Figure 2: Evolution of daily Nominal Effective Exchange Rates RON/EUR (NEER) and their first differences (d_NEER) January 2007 – August 2008
In table 1 we presented the descriptive statistics of this time series, indicating that values were not normally distributed. Table 1 Descriptive Statistics of NEER January 2007 – August 2008 Mean Median Minimum Maximum 3.45679 3.40360 3.11120 3.76950 Std. Dev. C.V. Skewness Ex. kurtosis 0.178049 0.0515072 -0.0454306 -1.15089
Source: Authors’ calculations based on data from NBR
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The coefficient of variation, which could be considered a measure of volatility for the whole period, is 0.0515, bigger than 0.0119 calculated by Stavarek (2007) for the period May 1, 2004 – December 31, 2006 [10]. The first differences plot indicates that volatility tends to cluster (see Figure 2). An ARCH model with a single lag is described by three equations: yt = const + et (1) et /It-1 ~ N(0, ht) (2) 2 ht = 0+ 1e t-1 (3)
where, yt = value of time series in the time period t; const = time series mean; It-1 = information available at the time period t-1; ht = variance of et; 0 and 1 = coefficients that describe the variance behavior ( 0> 0 and 0 1 <1 since the variance ht has to be positive). The first equation indicates that values of the time series vary randomly about the mean. The errors of regression are, according to the second equation, normally distributed and heteroskedastic. The third equation indicates that variance ht depends on the error in the preceding period. ARCH could be treated as a special case of GARCH in which lags are included in the regression variance. In a case of a GARCH with a single lag for the regressions of time series values and their variance, the equation (3) becomes: 2 ht = + 1e t-1 + 1ht-1 (4)
where, and 1 = coefficients describing the variance behavior.
4. Empirical Results We used the logged values of NEER (noted with l_NEER). The transformed time series is, according to Augmented Dickey Fuller tests, nonstationary. Initially, we applied a GARCH model, but the tests about the significance of regressions lead to an ARCH model with a single lag. The results of GARCH estimation are presented in the table 2.
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Table 2 GARCH estimation for the l_NEER values Variable Coefficient Std. Error t-statistic p-value const 1.21788 0.0007195 1692.5949 <0.00001*** alpha(0) 9.37874 2.50023 3.7512 0.00018*** alpha(1) 1 0.0749697 13.3387 <0.00001*** Source: Authors’ calculation based on data from NBR Notes: ***denote significance on 1 percent.
Mean of dependent variable = 1.2390; Standard deviation of dep. var. = 0.0516676; Unconditional error variance = 1.0302e + 009; Log- likelihood = 880.58; Akaike information criterion = -1753.16; Schwarz Bayesian criterion = -1736.96; Hannan -Quinn criterion = - 1746.76; Test for ARCH of order 1 -Null hypothesis: no ARCH effect 2 is present; Test statistic: TR = 406.661 with p-value = P (Chi-Square (1) > 406.661) = 1.95429e-090. It resulted the estimated mean of the time series was 1.21788, while the variance is estimated by the equation: 2 ht = 9.37874 + e t-1 In comparison with the results obtained by Stavarek (2007), although obtained by a different method, it is obvious that after the adhesion the volatility of Romanian exchange rates increased [10]. The variance plot from l_NEER in the ARCH(1) model is presented in the figure 3. It is clear that most volatile periods of time were June - August 2007, January -March 2008 and May -June 2008. These intervals coincide with the periods of time when volatility of the financial markets from United States, Europe and Asia increased.
Figure 3: The variance plot from l_NEER in an ARCH(1) model
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5. Conclusions In this paper we approached the evolution of Romanian exchange rates after the adhesion to EU. Using the descriptive statistics and a GARCH model we found out the volatility increased after the adhesion. We may analyze this evolution in the connection with the increased volatility that characterized the financial markets around the world in 2007 and 2008. From this perspective, we could conclude that Romanian exchange rates are very sensitive to the external influences. The significant foreign capital flows from the last years contributed to this situation The exchange rates volatility has a negative effect on the exports. Moreover, in order to adopt euro, Romania has to increase the exchange rates stability. In these circumstances, NBR could try a more flexible monetary policy, with an active role on the exchange market when the volatility threats to escalade.
References [1] Ashley Richard, On the Origins of Conditional Heteroskedasticity in Time Series, May 19, 2008. Available: http://ashleymac.econ.vt.edu/working_papers/origins.pdf [2] Bahmani -Oskooee Mohsen, Kutan Ali M., Are Devaluations in Emerging Economies of Eastern Europe? Springer, vol. 41(1), pages 61-74, March, 2008 [3] Bollerslev Tim, Russell Jeffrey R. and Watson Mark, Volatility and Time Series Econometrics: Essays in Honour of Robert F. Engle, Oxford University Press, 2008 [4] Chmelarova V. and Schnabl G., Exchange rate stabilization in developed and underdeveloped capital markets, ECB Working Paper no. 636.Frankfurt am Main, European Central Bank, 2006. Available: https://www.ecb.int/pub/pdf/scpwps/ecbwp636.pdf [5] Engle Robert F. and Patton Andrew J., What Good Is a Volatility Model?, 29 January, 2001. Available: http://www.economics.ox.ac.uk/members/andrew.patton/vol_paper_final.pdf [6] Engle Robert, GARCH 101: The Use of ARCH/GARCH Models in Applied Econometrics, Journal of Economic Perspectives — Volume 15, Number 4 Fall 2001—Pages 157–168. Available: http://www- stat.wharton.upenn.edu/~steele/Courses/434/434Context/GARCH/garch1 01(EN GLE).pdf
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[7] Fidrmuc Jarko & Horvath Roman, Credibility of Exchange Rate Policies in Selected EU New Members: Evidence from High Frequency Data, CESifo Workshop on EURO -AREA ENLARGEMENT, 24 November 2006. Available: www.cesifo-group.de/link/eee06- Fidrmuc2.pdf [8] Johnston Ken and Scott Elton, Garch Models and The Stochastic Process Underlying Exchange Rate Price Changes, Journal of Financial and Strategic Decisions, Volume 13 Number 2, Summer 2000. Available: http://www.studyfinance.com/jfsd/pdffiles/v13n2/johnston.pdf [9] Poon Ser -Huang, Granger Clive, Forecasting Financial Market Volatility: A Review, Journal of Economic Literature, 41(2), 478 -539 June 11, 2001. Available: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=268866 [10] Stavarek, Daniel, Ability of the New EU Member States to Fulfill the Exchange Rate Stability Convergence Criterion, paper presented at the Pennsylvania Economic Association 2006 Conference in Indiana, PA on June 1 – 3, 2006. Available: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=903860 [11] Stavarek, Daniel, On Asymmetry of Exchange Rate Volatility in New EU Member and Candidate Countries, MPRA Paper No. 7298, posted 22. February 2008. Available: http://mpra.ub.uni- muenchen.de/7298.
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THE INTEGRATION AND B2B COMMERCE
Assoc. Prof. Răduţ Carmen, PhD, TA Codreanu Diana
”Constantin Brâncoveanu University, Piteşti, [email protected]
Abstract Commerce constitutes the exchange of products and services between businesses, groups and individuals and hence can be seen as one of the essential activities of any business. Hence, electronic commerce or eCommerce focuses on the use of ICT to enable the external activities and relationships of the business with individuals, groups and other businesses. In B2B interactions spanning electronic commerce, supply chain management, and other applications, the terms and conditions describing the electronic interactions between businesses can be expressed as an electronic contract or trading partner agreement. The trading partner agreement trading partner agreement expresses the rules of interaction between the parties to the trading partner agreement trading partner agreement trading partner agreement while maintaining complete independence of the internal processes at each party from the other parties. It represents a long-running conversation that comprises a single unit of business. In this paper we describes the needs of inter-business electronic interactions and we describes the basic principles of electronic trading partner agreement is, followed by an overview of the proposed trading partner agreement language.
Key-words: electronic commerce, electronic interactions, b2b commerce, supply chain management, electronic tranding
Introduction Enterprise suppliers are faced with increasing complex tasks of enabling B2B stores to serve their enterprise customers for direct purchases and to support a large number of protocols in order to interoperate with various procurement systems. In this paper, we 69 Knowledge Based Organization 2008 International Conference present a unified B2B solution that separates the integration process into two protocol-dependent and independent tasks with a 2-tier architecture to simplify the support of commerce functions for diverse access points [2]. The first tier B2B gateway system handles all protocol related tasks such as handshaking with external networks and message format conversion. The second tier commerce engine executes commerce related tasks and provides protocol-independent shopping and ordering support for the B2B stores. Using a single sign- on mechanism and a unified shopping cart format in the commerce engine, our solution has streamlines the administrative processes associated with supporting and boarding new B2B buyers into the commerce engine. [1] Oracle (NASDAQ: ORCL) is the first software company to develop and deploy 100% internet-enabled enterprise software across its entire product line: database, business applications, and application development and decision support tools. Oracle is the world's leading supplier of software for information management, and the world's second largest independent software company. [7] B2B provides a one-stop service for a trading hub to connect with all trading partners for data exchanges using any B2B standards (fig.1). B2B provides Customers with: 9 Managed Services “ Translation and Transaction Delivery 9 Advantage Services “ Community Ramping, Managed Services 9 Global Standards - Insulation from B2B Heterogeneity (EDI, RosettaNet, etc.)
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Figure 1. The B2B standard
Now, the B2B has developed a large online business community and help major hubs to maintain their communities (fig. 2). [8]
Figure 2. The evolution of online community
Implementation Options are specified in figure 3.
Figure 3. The implementation options with Oracle
Where: Option 1 - B2B provides company with Oracle Application Server 10g which is RosettaNet compliance plus it–s :
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9 Most Productive Development “ includes J2EE Applications, Web Services, Enterprise Portal, Wireless, Business Intelligence 9 Most Reliable Deployment “ Provides most reliable platform for fastest J2EE and Web Services environment 9 Lowest TCO “Oracle AS 10g is an integrated product further lowering total cost of purchase, operate and manage the product. Option 2- B2B provides a hosted services to automate their business processes with all trading partners to address complexity, scalability and financial issues. The manage of business, we'll manage the EDI RosettaNet (RN), with: 9 All of the benefits associated with RN without the headaches 9 Significantly reduce the costs associated with conventional EDI-VAN 9 Add trading partners who are currently not EDI-RN or RN capable Option 3 - Combines to best of options 1 & 2. [3] The Community Link Methodology involve (figure 4): 9 Communication 9 Program Definition 9 Change Management 9 Implementation 9 Program Management 9 Technical Support
Figure 4. The Community Link Methodology
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E-commerce provides a fundamentally new way of conducting commercial transactions and has farreaching economic and social implications. It will affect industry structures and competition in home and international markets. It presents major new business opportunities for Irish-based enterprises and for the development of new sectors. It also poses significant threats for enterprises that do not prepare for the fundamental changes that are taking place. At a national level there is a need to ensure that the required legal, regulatory and facilitatory business environment is conducive for the enterprise sector to fully exploit the opportunities and to develop Ireland as a leading location for e-commerce-driven investment. At the level of the development agencies, it requires a new approach to the development of national enterprise policies and new actions.
Conclusion The ability to redefine inter-firm relationships and processes, internetenabled and other Business to Business (B2B) mechanisms facilitate the integration and management of inter- or intra- organisational business processes that produce value for customers. B2B ecommerce in supply chain management (SCM) becomes more important due to its performance implications. Process integration involves upstream and downstream coordination with supply chain partners. In these interactions, supply chain B2B ecommerce helps minimize complexity and increase flexibility while enhancing a higher degree of communication and operational efficiency.
References [1] D. M.D. M. Dias, S. L. Palmer, J. T. Rayfield, H. H. Shaikh, T. K. ,Sreeram, "e-Commerce Interoperability with IBM' s WebSphere Commerce Products", IBM Systems Journal, Vol. 41, No. 2, pp. 272--286, 2002.
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[2] Nahid Jilovec, The A to Z of EDI and Its Role in E-Commerce, second edition, Duke Press, 1998. [3] Commerce Extensible Markup Language (cXML) User Guide, Version 1.2, Ariba Inc., http://xml.cxml.org/current/cXMLUsersGuide.pdf. 2001. [4] Commerce One solutions, Commerce One Operations Inc. http://www.commerceone.com/solutions/srm_tech.html. [5] IBM public site (ShopIBM), IBM Corp. http://www.ibm.com/products/us/. [6] IBM WebSphere Commerce Business Edition, IBM Corp. http://www- 3.ibm.com/software/webservers/commerce/wc_be/ [7] Oracle procurement, Oracle Corp. http://www.oracle.com/applications/B2B/internet_procurement/index.html? intro.html [8] "Open Buying on the Internet" Technical Specifications, Release 2.0, The Open Buying on the Internet (OBI) Consortium, 1999. http://www.commerce.net/oldwebsite/research/technology- applications/1999/99_28_r.html. [9] OAG business object documents, Open Applications Group Inc. http://www.openapplications.org/. [10] "Open Catalog Interface (OCI)", Release 2.0B, SAP AG, 2000. http://www.sap.com/partners/icc/scenarios/pdf/b2b_oci_20b.pdf. [11] SAP procurement, SAP AG. http://www.sap.com/solutions/bi/procurementinsightpackage/.
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INFLUENCES OF THE GLOBAL FINANCIAL STRUCTURE OVER THE FIRM’S FINANCIAL MANAGEMENT
Assoc. Prof. Stanciu Leontin, PhD, Accountant Stanciu Liliana-Mioara
”Nicolae Bălcescu” Land Forces Academy, Sibiu
Abstract At the macroeconomic level, the instruments, the variables and the constrains of the financial management are dependent on characteristics of the business environment. The business environment exerts them on specific issues concerning financial management. The economic-financial environment in which firms are working has certain features that allow, simultaneously, to delimit the financial management field and to justify the instruments it uses and types of regulations that guide it and sanction it. Based on the main characteristics of the global financial structure, the authors assert that the stage of development and its complexity are influencing decisively the variables of action of the financial management, the terms of problems specific to it, as well as the nature of the offered solutions.
Keywords: global financial system, financial structure, financial management, influence
In terms of the market economy, the manager’s ability to understand and apply the principles, methods and modern techniques of management has a decisive influence on the efficiency at the macroeconomic level. The quality of management represents a vital condition needed for the firms to obtain competitive advantages and to withstand in the competitive economic environment. Thus, in the latest years, it has been demonstrated that the main causes of a firm’s bankruptcy are managerial incompetence and leadership mistakes due 75 Knowledge Based Organization 2008 International Conference to errors in taking decisions. In a structural analysis, the factors help a total of 60 percent, followed, at a great distance, by unfavorable market evolutions ( totaling 20%) and other causes ( 10%).[1] Taking into account that bankruptcy appears because of the firm’s inability to honor its bond payments and it is determined by the existence of insufficient cash, we asses that financial activity management is the key to a successful or unsuccessful business. At a macroeconomic level, the way in which issues of financial management are regarded is determined, to a large extent, by the characteristics of the global financial system. Because the instruments, variables and constraints of financial management are dependent on the environment features, global financial structure analysis allows identifying the influences it exerts on specific financial management issues. The financial environment where firms activate has features that allow, concurrently, to delimit the financial management’s domain and to justify the instruments it uses and the types of regulations that guide and sanction it. Taking into account that the components of this environment are interdependent, we can utter the concept of financial system to designate all the instruments, institutions, markets and types of regulations that allow the undergoing of financial operations in a national or international economic space. [2] The financial system consists, in the majority of countries, in typical forms of organization, more or less distinct, but durable. This reality is suggested by resorting to the concept of financial structure, which expresses, in turn, the main and relatively stable characteristics, particular in the way components of the financial system are assembled. [3] One can identify the following main characteristics of the global financial structure in a given country: • global financial structure is characterized by all particular instruments, which represent the support for financial operations ( settlement, saving, financing and covering financial risks), diversifying and extending the range of financial assets, distributing between different kind of assets- represent a necessity for an efficient financial structure;
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• financial structure is characterized by the nature and the distinction between financial institutions that intervene, constantly, in the process of preserving and putting in circulation of financial assets; financial structure analysis should not limit itself just to studying financial institutions, but it should include studying the markets where financial assets are traded and the circuits and channels that support the circulation of financial flows in national and international economy; • global financial structure can be characterized, in terms of quantity, due to the analysis of particular ratios between registered values for different kind of financial assets; also, it can be studied by comparing the trade flows with these kind of financial assets, through indicators that show the share of different types of institutions and markets and through measures which express the major features of real economy. Considering these main characteristics, we maintain that the stage of development and the complexity of the global financial structure are decisively influencing the variables of action for financial management, the terms of specific issues, as well as the nature of offered solutions. Thus, a financial system characterized by slightly different structure offers a limited range of solutions and means of financing, the main issue of financial management being anchored in the field of the firm’s self-financing and control of payments and incomes. On the other hand, in a financial system characterized by a wide range of instruments, institutions and markets, financial management needs to use a diversity of financing techniques, placement, investment and risk management. Also, in a very well defined context, not all firms are, equally, interested in the different aspects al global financial structure. Certain particular features determine the possibility to access different fields of action in financial management, as well as avoiding some of them. The influence exerted by the evolution of the financial system can be shown through the analysis of the main types of global financial structure, as observed in economically developed countries, and also in developing ones. The main conclusion of this succinct analysis is that: every type of financial environment delimits the space destined 77 Knowledge Based Organization 2008 International Conference for the firm’s financial management, determining its objectives, issues and means of action. In an incipient financial system, financial management represents, in the majority of firms, a field of relative concerns over the knowledge and observing currency regulations, forming and using self-financing as much as possible. External financing, insured by intermediates minutely differenced allows, especially, satisfying the needs linked to the firm’s current activity. In an economy of financial intermediation, characterized by a certain diversification of financial assets, besides money, one can notice emerging different instruments for savings and credit. Creating and managing these instruments are accomplished, primarily, by financial intermediates, more or less specialized. In these conditions, financial management is dominated by relative concerns for relations established between firms, on one side, banks and other credit institutions, on the other side. These relations are primarily linked to settlement operations, short and medium term financing and investment. Financial market economy uses a wide range of financial assets, representing not only an institutionalized offer from financial intermediates, but also an offer for titles issued by firms and other non-financial entities. In such an economy, financial management should know the instruments and constraints particular to the capital market. Even if the firm has no direct access on these markets, being dependent on services offered by banks and other specialized institutions, it is influenced by changing financial instruments and emerging variables (course of foreign exchange, interest rate, etc.). In the same context, financial management is also influenced by the internal characteristics of the firm, connected to the nature, the extent of the carried out activity, the specific of the cycle of production, the stage of development. In consequence, the influence of the global financial system over the firm’s financial management is, in general, dependent on the following main characteristics: • the development, more or less advanced, of the currency exchange;
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• the extension of the range of instruments offer to those who save and those who borrow in the national economy; • the diversity and strength of specialized institutions, that assume the role of financial intermediates; • the existence and efficacy of capital markets. [4] For financial managers, financial market economy seems, at first sight, to multiply their possibilities to choose, to allow them to search financing solutions according to the firm’s need, at the lowest price. This extent in possibilities to choose is the result of market and financial institutions development, and financial space is in favor of multiplying financial instruments thus, answering to various needs. However, market economy exposes financial managers to new difficulties. On one side, financial market instability phenomena, directly affecting the interest ratio, the course of foreign exchange and the value of financial assets, constitutes the main cause for aggravating financial risks. On the other side, financial market economy exerts a more severe financial constraint over the firms. In the same time with the increasing financing possibilities on the capital markets, firms are subject to pressures from title buyers (especially shares and bonds) that, by contributing to their financing, have permanent control over their performance and risk evolution. Lastly, financial market economy supplies financial management with wide possibilities to choose the financing solution, but helps to raise suspicion in taking more complex and more risky decisions. In these terms, big firms benefit fully from the possibility of combining, in their interests, relations with markets and relations with credit institutions. Instead, small and medium enterprises seen less armed to enter the market and can sometimes found themselves in a rather mandatory relation with credit institutions.
References [1] Onofrei, Mihaela, Financial management, Bucharest, C.H. Beck Publishing House, pp.1, 2006. [2] Ilie, Vasile, Financial management of the enterprise, Bucharest, Teaching and Pedagogical Publishing House, pp. 39, 1999. [3] Ibidem, pp. 40. [4] Giurgiu, Aurel-Ioan, Duma, Florin Sebastian, Financial management for start-up, Cluj-Napoca, House of Books Publishing House, pp. 14, 2006.
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FINANCING DECISION-MAIN DRIVING FORCE FOR IMPLEMENTING THE FIRM’S FINANCIAL POLICY
Accountant Stanciu Liliana-Mioara, Assoc. Prof. Stanciu Leontin, PhD
”Nicolae Bălcescu” Land Forces Academy, Sibiu
Abstract One of the fundamental decisions in financial policy, at the macroeconomic level, is choosing the means to finance, respectively to determine, on one side the volume, and on the other side the ‘composition’ of external financing. In this respect, financing decision represents, next to the investment decision, the essence of financial management. By taking a financing decision, financial management is following the choice of the firm’s financing structure, analyzing, in terms of optimal criterion, the cost of every source of capital. In this context, the authors claim the necessity of promoting those financing solutions that are reliable and flexible, that would satisfy the various needs for financial resources, owed to the development of the business, and the specific conditions of profitability-risk.
Keywords: financial balance, financial decision, financial policy, financial management, financial structure
The financing decision represents, along with the investment decision, the essence of financial management. [1] Financial management should identify and propose financing solutions, needed to cover the firm’s investment projects, at the lowest cost. Often, the biggest problem is not to identify the financing sources, but to optimally combine them in terms of risk and efficiency (Risk and Return Financing, Mix). In principle, financing decisions focus on three fundamental aspects for a firm, respectively [2]: • choosing the financing structure ( distribution among the firm’s capital and borrowed capital); 80 Knowledge Based Organization 2008 International Conference
• dividend policy( choosing between reinvesting the profit and distributing it as dividends); • choosing between internal financing (endogenous) and external financing (exogenous). To realize a financial balance at the firm’s level, financial management need to constantly observe its fundamental rules [3], accordingly: • perpetual needs for constituting fixed assets request financing from permanent sources, mobilized for long term or unlimited term; • temporary needs must be covered from temporary sources, and the revolving fund should be bigger than the need, to register a positive net treasury. Also, in achieving financial balance, the quality of investment decision and that of financing decision is essential. If, in the case of investment decision the main choice is between the internal investment in physical assets (materials, equipments, etc.) and financial investment in securities, in the case of financing decision, the main option consists in its own sources and borrowed ones. Consequently, financing decision represents the firm’s option to cover its financing needs for planned projects, either through its own funds, through loans, or through participation. Regardless of the option, financing decision is particular each and every firm and project. In practice, there is no optimal decision, generally suitable for all the firms, regardless of time and space conditions. Even so, we consider that investment decision primes over financing decision, and if the financial structure is built according to the firm’s own financing necessities, then the firm can not have financing difficulties. By taking a financing decision, financial management intends to choose to firm’s financial structure, analyzing, on optimality criterion, the cost of every source of capital. Within this decision taking process, one concentrates on shares that come to capital, respectively to borrowed capital. Also, one needs to consider the possibility to temporary attract some monetary sources that belong to other entities that have financial relations with the firm. Thus, it is preferred to intervene, on one side, on the limits of shares emission and
81 Knowledge Based Organization 2008 International Conference distributing profit for self-financing, and on the other side on the limits of indebting. If the payment or the cost of capital and/or borrowed capital plays an important role in taking the financing decision, then we assert that efficiency criterion is decisive, because: • an efficient firm will always find capital to finance its own projects, even if the financial structure shows a high level of indebting; • indebtedness effect will have a positive influence over the firm’s financial efficiency if, in the hole picture, efficiency ratio is superior to the interest rate. Ultimately, all financing sources tend towards a unit cost, if we take into consideration the factor risk, so that choosing the right proportion funds/loans would take place according the opportunity. In the situation in which an investment is less profitable, meaning that it does not cover the total cost of the loan, capital seems cheaper than credit. This estimation is often misleading because, by giving up the loans, the firm can be viewed as having an economic growth, profitable. On the contrary, if the investment is profitable, capital seems more expensive, because the profit tax is not smaller than the financial expenditures. Between the two major financing options-financing through indebtedness and self-financing-, should stay the financial analysis of performance, cash and solvency, so that the following way of financing to be chosen should determine the growth in performance, as well as the cash and solvency status is consolidated. The incidence of those indicators over the financing decision can be thus presented: • if the forecasted profitability is superior to the interest rate it is appropriate the use loans, because in such a situation, indebtedness contributes to a growth in mass profit and in capital profitability; • financing decision through indebtedness has, in most cases, a positive influence on solvency, just that, in the case of losses, solvency decreases a lot faster; • in the case of profitable firms, financing through indebtedness has a positive influence over the cash also; taking into
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consideration the fact that resources attracted by indebting have a limited maturity date, it is necessary for the period to use those resources not to surpass the payment deadline of the borrowed sums.[4] In conclusion, obtaining financing resources, for both short-term and long-term, and paying back financing entities that provide these funds involves certain cost that needs to be considered when taking a financing decision. In this context, financial management must provide flexible and reliable financing solutions, thus satisfying various resource needs due to the business’s evolution, in terms of the firm’s particular profitability-risk ratio. [5] At a macroeconomic level, financing decision strongly influenced by the way economic mechanisms from regional, to national and even international, work. [6] Romania is characterized by relatively unstable economic and political situation, and this influence firm’s financial results, regardless of the quality of their management. Financing decision is influenced, at a macroeconomic level, by specific variables, such as inflation, course of foreign exchange evolution or interest rate evolution on the market. [7] Inflation, after 1990, has been a permanent reality that ‘pressed’ Romanian economy. In an inflationist environment maintaining and developing firms are difficult tasks, and obtaining real positive profit is hard to achieve. The evolution of the inflation ratio is presented in the following table:
Table 1. The evolution of inflation ratio between 1990-2007 in Romania
Year Inflation 1990 5,1 1991 170,2 1992 210,4 1993 256,1 1994 136,7 1995 32,3 1996 38,8 1997 154,8 1998 59,1 1999 45,8 83 Knowledge Based Organization 2008 International Conference
2000 45,7 2001 30,3 2002 22,5 2003 15,3 2004 9,3 2005 8,6 2006 4,9 2007 6,6 Source: BNR Annual Reports
Analyzing the figures in the upper table, we can observe that the inflation phenomenon has perpetuated from one year to another, in some moment and even periods when, unfortunately, it reached unwanted peaks, like in the 1991-1994 period. In these periods, many Romanian firms could not adapt to the existent economic conditions and registered negative values of real profitability. According to the financial theory, a method to estimate the cost of capital is current investment profitability rate for the taken risk. Being difficult to determine in a market general analysis, without knowing the investors opinions, it is often estimated through the financial profitability ratio offered by the firm to its shareholders. Having this as a starting point, we assert that: • this method of measuring the cost of capital should not be set as a rule, because financial profitability ratios offered by the firms are not always the same with those desired by the investors (for instance, no investor will ask for a negative profitability ratio); • estimating the cost of capital should be accomplished through many methods and afterwards, an eloquent conclusion will be drown; • in case a negative profitability ratio is estimated, then the appropriate decision is to orient towards other investment opportunities. Profitability ratio asked by the investors has for reference indicator also the interest rate on the market where the firm activates. So, we can identify at least two reasons for which interest rate on the market is a useful indicator both for the firm, and for its investors, accordingly:
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• if the firm uses the method of indebtedness, banking interest rate determines the cost of debt, with a direct influence on the cost of capital; • investors compare the profitability ratio offered by the firm with the interest rate at deposits and if the firm does not offer o profitability superior to that obtained through bank deposits, this can mean loosing important financing resources. In the 1992-2007 period, inflation ratios have badly influenced the interest rates offered by banks. In these conditions, increasing temporarily available funds, through the banking system, was not an investment much more attractive than shares buying. On the other side, looking from the firm’s point of view, the ratio between active interest rate and inflation ratio has been favorable, because the banks have designed active interest rates under the inflation ratios (situation favorable to those firms that needed financial resources as cheap as possible), when the real interest rate was negative. Another macroeconomic indicator that has influenced the firm’s financing structure is the exchange rate of national currency, the evolution of which is presented in table number 2.
Table 2. The evolution of the exchange rate ROL/USD and ROL/EUR
Year ROL/USD rate ROL/EUR rate at the end at the end of the period of the period (31.12.1998) 1 2 3 1990 34,71 48,06 1991 189 252,66 1992 460 556,07 1993 1276 1445,64 1994 1767 2134 1995 2578 3299 1996 4035 5005 1997 8023 8867 1998 10.951 12.788 1999 18.255 18.331 2000 25.926 24.118
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2001 31.597 27.881 2002 33.500 37.919 2003 32.595 41.117 2004 29.067 39.663 2005 31.078 36.771 2006 25.676 33.817 2007 24.564 36.102 Source: BNR Annual Reports
The continuing depreciation of national currency up until 2004 has influenced the activity of all Romanian firms and it had a direct impact in their financing structures. Thus, the first to be touched were those who dealt with activities of import-export, the depreciation influencing the net result from the export activity and also the one from the import activity, reflecting, in the end, in terms of financing policy, in the dimension of the weighted average cost of the firm’s capital. Also, the unfavorable trend of the exchange rate has affected also the activity of the firms dealing with something else than that of import-export, through the prices of utilities, that were related to the evolution of the American currency or, more recently, to the European currency (Euro). Since 2004, the national currency has manifested a phenomenon of appreciation in front of the two foreign currencies, influencing the financial situation of Romanian firms, especially those with export activities, because there incomes in Euro or Dollars had no more purchasing power on the national market. In conclusion, we assert that the Romanian firms activate in an environment with many constraints, and in defining the financing structure there should be considered all the micro- and macroeconomic variables. Financial management should not limit itself to identifying financing sources, but it should find the optimal financing combination that would diminish the average cost of capital and maximize the firm’s value.
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References [1] Giurgiu, Aurel-Ioan, Duma, Florin Sebastian, Financial management for start-up, Cluj-Napoca, House of Books Publishing House, pp. 37, 2006. [2] Vasile, Ilie, Financial management of the enterprise, Bucuresti, Teaching and Pedagogical Publishing House, pp. 140, 1999. [3] Stanciu, Ion, Finance. The theory of financial markets. Enterprise finance, Bucharest, Economic Publishing House, pp. 285, 1997. [4] Toma, Mihai, Alexandru, Felicia, Finance and enterprise financial management, Bucharest, Economic Publishing House, pp. 30, 1998. [5] Helfert, Erich, Financial analysis techniques. Guide for creating value, The 11th Edition, BMT Publishing House, pp. 321, 2006. [6] Dragota, Mihaela, Investment decision on the capital market, Bucharest, ASE Publishing House, pp.23, 2006. [7] Ivanescu, Dan Nicolae, Decisive factors of the financial structure, Bucharest, ASE Publishing House, pp.112, 2007.
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FINANCIAL AND TECHNICAL RESULTS OF INSURANCES COMPANIES
Assoc. Prof. Văduva Maria, PhD
“Constantin Brâncuşi” University, Târgu-Jiu, [email protected]
Abstract Annex 16 presents the financial and technical results registered by insurance companies carrying their activity in 2006, both as a whole and for the two insurance companies, general and life insurances ones. Of the 42 insurance companies carrying activity in 2006, 28 companies have registered net profit, the cumulated value of the profit for these companies being of 1,213,848,563 thousand lei (30,604,053 EURO), with a nominal increase by 23,58% in comparison with 2005, with a real increase by 13,06, respectively.
Key-Words: results, insurance, companies
From the net profit point of view, three companies distinguish (ALLIANZ TIRIAC, BCR INSURANCES and ING LIFE INSURANCES), with a net profit of 757,923,577 thousand lei, together, 19,109,083 EURO, which is over 62% of the total value of the net profit at the level of the entire insurances market. Net profit over 50 billion were reached by 7 companies, together with the 3 mentioned above, plus ASIBAN, BT INSURANCES, OMNIASIG and AIG LIFE. Four companies, which registered losses in 2003, in 2004 registered a profit, namely: AIG LIFE, ALPHA INSURANCE, LUKOIL – ASITO and IRASIG (in the case of the first three the profit is due to the technical result related to general insurances, and in
88 Knowledge Based Organization 2008 International Conference the case of IRASIG, to the positive influence of investments related financial profits). Six profit companies in 2005, registered a loss in 2006, namely: OMNIASIG – AGI, OMNIASIG – ASIRAG, AGRAS, ASIROM, GENERALI and PETROAS, due to the insurance practices activities related technical result. The total number of companies registering losses in 2006 was 14, the cumulated value of registered losses being of 696,320,938 lei, the equivalent of 17,555,932 EURO, with a real increase by 175,75% in comparison with 2003. Losses over 50 billion lei have been registered by 4 companies (ASIROM, AVIVA, OMNIASIG-ASIRAG, UNITA), the total value of their losses being of 436,927,313 thousand lei, meaning 62,7% of the loss at the level of the entire market. These losses have been mainly caused by the insurance activity related technical results. Technical results are registered by insurance companies in the technical accounts of general and life insurances and are generated by the transactions made on companies for every category of activity separately, companies management regarding the subscription and managing taken risks, expenses and investments related profits. Some insurance companies can have losses from the subscription activity due to subscribing some risks that cause big damages, low bonuses tariffs, paying high damages or the incapacity to recover amounts due by the reinsurer, but can achieve profit due to investments profits.
Insurance brokers’ activity On the basis of the stipulations introduced by the Law no. 403/2004, for modifying and completing the Law no. 32/2000 regarding insurances companies and supervising insurances, the insurance broker is the Romanian or foreign artificial person, authorized to negotiate for his clients, his potential insured people, conclude insurance or reinsurance contracts and give assistance before and during the contracts, or in connection to damages regularization. The same law defines the insurance broker as being an intermediary in a member state carrying out intermediation activities in Romania, in accordance with the establishment right and services providing 89 Knowledge Based Organization 2008 International Conference freedom, enforceable at the date our country’s adhesion to the European Union. Taking into consideration the significance of this distribution division at international level, CSA issued for adopting the European legislation, regulations regarding insurance intermediaries activity leading to their position consolidation on the insurances market in Romania. The main brokerage specific indicators in insurances, for 2006 are organized and presented.
Assets and social capital of insurance brokers From the analysis of the financial accounts by the 234 insurance brokers, results that on 31.12.2006, the total value of assets registered by them was of 934,443,193 thousand lei (23,559,569 EURO). Of the total number of insurance brokers, 23 have achieved assets over 10 billion lei, the cumulated value of the assets of these companies being of 559,462,303 thousand lei (14,105,396 EURO), which was 60% of the total value of the account assets of all the brokers. The value of the subscribed social capital in financial accounts on 31.12.2006 was of 70,333,573 thousand lei (1,773,279 EURO) and that of paid social capital was of 69,898,499 thousand lei, the difference of 435,074 thousand lei being the unpaid value of 3 companies. By analyzing these data, results that 127 brokers had a social capital equaling the minimum legal value (150 million lei), 88 companies held a subscribed social capital between 150 million and 500 million lei, 13 companies had a capital between 500 million lei and 1 billion lei, while 6 insurance brokers had subscribed social capital over 2 billion lei (up to 5,3 billion lei).
Intermediated insurance bonuses The total value of intermediated bonuses, reported to a number of 219 insurance brokers (3 companies have damages regularization related incomes) was on 31.12.2004 of 6,656,604,477 thousand lei (167,829,072 EURO). Of them: 90 Knowledge Based Organization 2008 International Conference
- 14 brokers have intermediate bonuses over 100 billion lei. The total value of intermediate bonuses was of 3,914,143,772 thousand lei, representing 58,8% of the total intermediate bonuses; - 7 brokers with intermediate bonuses values between 50-100 billion lei. The total value of bonuses intermediated by them are 522,292,956 thousand lei, representing 7,8% of the total of intermediated bonuses; - 75 brokers with intermediate bonuses values between 10-50 billion lei. The total value of bonuses intermediated by these 75 brokers are 1,745,548,276 thousand lei, representing 26,2% of the total of intermediated bonuses; - 123 brokers with intermediate bonuses values below 10 billion lei, the amount cumulated for them being of 474,319,473 thousand lei, representing 7,1% of the total of intermediated bonuses by all the brokers on the market. Of the value of gross subscribed bonuses by insurers during 2006 (34,765,439,256 thousand lei), the value of bonuses intermediated by insurance brokers (6,656,604,477 thousand lei), with a weight of 19,1% increasing in comparison with 2003 when a 10,8% weight was registered. In Romania, like in the other countries of the Central and Eastern Europe, insurance companies promote and sell their products, usually directly through their personnel or agents, and to a lower extent through insurance brokers, proved by the relatively low amounts intermediated by brokers, as subscribed bonuses included between 10 and 20%.
Commissions from intermediated bonuses In the 2006 financial exercise for the intermediated bonuses, commissions were cashed amounting of: 1,024,952,111 thousand lei (25,841,518 EURO), representing 86,3% of the insurance brokerage activity related incomes, and 15,4 of the intermediated bonuses value, respectively. The commissions of the intermediated bonuses have been reported by 219 insurance brokers (3 companies reporting damages regularization profits), of which: 91 Knowledge Based Organization 2008 International Conference
- 4 insurance brokers, with commissions values between 50 and 80 billion lei, whose total value is of 284,196,251 thousand lei, representing 27,7% of the total commissions value; - 15 insurance brokers, with commissions values between 10 and 50 billion lei, whose total value is of 372,752,698 thousand lei, representing 36,4% of the total commissions value; - 18 insurance brokers, with commissions values between 5 and 10 billion lei, whose total value is of 115,726,784 thousand lei, representing 11,3% of the total commissions value; - 94 insurance brokers, with commissions values between 1 and 5 billion lei, whose total value is of 218,677,957 thousand lei, representing 21,3% of the total commissions value; - 4 insurance brokers, with commissions values less than 1 billion lei, whose total value is of 33,598,521 thousand lei, representing 3,3% of the total commissions value
Brokerage related profits From the reports sent by brokers for the 2006 financial exercise, presented in Annex 18, it results that the value of profits related to the brokerage activity, the registrations in the “Profit and Loss Account” on 31.12.2004 was of 1,188,027,732 thousand lei (29,953,048 EURO). The brokerage activity profits represent the amount of values obtained by brokers by negotiating insurance and reinsurance contracts conclusion for his clients, possible insured people, assistance before and during his contracts or in connection to damages regularization. The total value of insurance brokerage activity profits, registered by 222 brokers in financial accounts, structured in accordance with the incomes levels, is as follows: - 4 brokers, with profits between 50 and 93 billion lei, whose total value is of 304,578,802 thousand lei, representing 25,6% of the total profits value; 92 Knowledge Based Organization 2008 International Conference
- 22 insurances brokers, with profits between 10 and 50 billion lei, whose total value is of 493,641,159 thousand lei, representing 41,5% of the total profits value; - 22 insurances brokers, with profits between 5 and 10 billion lei, whose total value is of 135,904,904 thousand lei, representing 11,4% of the total profits value; - 96 insurances brokers, with profits between 1 and 5 billion lei, whose total value is of 224,799,185 thousand lei, representing 18,9% of the total profits value; - 78 insurances brokers, with profits up to 1 billion lei, whose total value is of 29,103,682 thousand lei, representing 2,4% of the total profits value; The two insurance brokers specialized in damages regularizations (AVUS INTERNATIONAL, CORIS ROUMANIE and DIANA CLAIMS ADJUSTER’S BUREAU DAMAGES REGULARIZATION), have registered incomes from the main activity of 29,058,263 thousand lei (732,629 EURO), with a real increase by 55,5% in comparison with the value registered in 2003.
Financial results Financial results of the insurance brokers authorized to carry activities in 2006 transmitted financial accounts. Of the 234 companies presented in the annex, 175 brokerage insurance companies had profit, while the number of brokers ending 2006 with losses was of 59. The total value of the profit at the level of insurance brokers market was of 253,433,627 thousand lei (6,389,674 EURO). Profits above 10 billion lei have been achieved by 7 brokers, the cumulated value for them being of 95,639,044 thousand lei, meaning 37,7% of the total value of the profit at the level of the market. Profit values included between 1 and 10 billion lei were achieved 47 insurance brokers, with a total amount of 122,526,587 lei (48,3% of the total). 121 companies registered net profit below 1 billion lei their total value being of 25,267,996 thousand lei (13,9% weight) The cumulated loss of the 59 insurance brokers was of 24,655,860 thousand lei (621,634 EURO), losses over 1 billion lei being achieved 93 Knowledge Based Organization 2008 International Conference by 4 companies (the total value of losses being of 15,014,461, meaning 60,9%). The other 55 companies ended 2006 with losses less than 1 billion lei, the cumulated value of losses being of 9,641,399 thousand lei (243,083 EURO), being 39,1% of the total
References [1] Alexa, C., Ciurel, V., Sebe, E., Mihaescu, A., M., Insurances and reinsurances in International Trade, A Publishing House Bucuresti, 2001. [2] Costantinescu, D., A., Marinaica, D., Insurance and the Management of Risk Technological, Printing House Bucuresti, 2000. [3] Petrescu, E., C., Marketing of Insurances, Uranus Printing House, Bucuresti, 2005. [4] Vaduva, M., Insurances, Mirton Printing House, Timisoara, 2005. [5] Vaduva, M., Reinsurances, Mirton Printing House, Timisoara, 2005.
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ASPECTS REGARDING BANKING MARKETING IN THE CONTEXT OF GLOBALIZATION
Asst. Prof. Bălăceanu Valeria Arina, PhD
Ecological University of Bucharest, [email protected]
Abstract Considering the development of competition, the unique European market is a challenge not only for banking services but also for the authorities involved in the harmonization of law standards in this field. The European Union is highly interested in harmonizing the free flows of capitals and services, followed by the identification and the disappearance of all barriers by 2010. The contemporary business environment is characterized by the globalization trend, which is generated by the development of both international trade and information technology. Globalizing banking business is the result of not only mergers and acquisitions but also of their amplification at a planetary scale; at the same time it is the response to the changes within the business environment, namely market globalization, giving up mediators, the European integration, and the unique currency.
Keywords: Globalization, economic development, banking systems, management, marketing
Considering the economic development and the growth of commercial flows, globalization and competition, some of the most dynamic changes in the last fifteen years have been made in the banking systems. The credit institutions are extremely active, dynamic, flexible participants who can easily adjust to the market changes to the economic life worldwide; they are able to create the request of products and services. The Romanian credit institutions will be confronted more and more often to the European Uniondemands and their competitiveness on the unique European market will highly 95 Knowledge Based Organization 2008 International Conference depend on the way they can implement an efficient system of quality management. The issue of the efficiency of quality management systems has been often discussed lately because of the development of competition and globalization. The last fifteen years have been a period of radical changes in the banking system. They are not only about its modernization, through a proper legal and institutional framework, and about creating a varied offer of banking products and services, but also about assimilating the community Acquis and being in line with the European Union politics, strategies and practices. Thus, the Romanian National Bank has the main role, as it authorizes the banks functioning and it settles and supervises their activities for a proper and prudent working. In the last years the Romanian banks have started to be concerned with individuals. Nevertheless, identifying the requests of the individual clients (existing or potential) is done either by the banks themselves, or with specialized firms; thus there may be misunderstandings or misinterpretations of the market research results. The process of transforming requests into banking products and services for this segment of clients is very difficult, especially for those small banks with not too many clients. The development of the international environment is influenced by the development of banking systems in different countries, which, at its turn, is determined by the historical, social and cultural context of that specific economy. As far as banking is concerned, business globalization is made by mergers and acquisitions, and also by their amplification at a planetary scale. Banking globalization is the response to the changes within the business environment, namely market globalization, giving up mediators, the European integration, the unique currency. The mergers and acquisitions made in the last ten years in the banking European environment have been influenced by two major elements: banking consolidation at a national level and the preference for a universal banking model. In this context, the European banking field has been undergoing an unrecorded development; its main features are the rapid growth as in number and volume and the increase of operations across the borders. As a basic idea, the large banks keep buying small ones; thus, the total number of banks diminishes, but, as an effect, a smaller number of banks keep controlling a bigger part of the banking resources. Acquisitions and 96 Knowledge Based Organization 2008 International Conference mergers have also contributed to the “movement” of the business lines outside the traditional banking activity and beyond national borders. The financial-banking sector develops in all economies, so that the management of effective marketing becomes imperative, by applying specific scientific techniques and methods. The financial- banking marketing has new and captivating ways of expressing itself under the impact of the quick environment changes, as the consumer society and mass production stimulate competition and lead to a larger use of financial-banking products and services in all social environments. Globalization in the banking field leads to trans-border operations which favor neighboring geographical or cultural areas with a growth potential. The objective of this phenomenon in the banking field is to create value for clients; they want banking products and services that pursue the satisfaction of their expectations and requests by: lowering costs, marketing price cuts per sold item, drawing up a wide and varied offer of products and services and generating a safety feeling and a good reputation by being an important institution that allows risk reduction and the best practice. Applying the new informational technology, communicating about banking products and services, using new risk management tools, managing data bases, the new payment systems, the necessary devices for the electronic services become more profitable if they are used with more important institutions or for a larger volume of activities generated by more products and services. Globalization in the banking field has been a progressive process of institutions and markets evolution (banks, stocks exchange, financial institutions etc.), so that geographical borders are no longer a limitation or restraint factor for financial transactions. Financial institutions (but not only them) identify the financial market abroad as a continuous prolongation of the national financial market. Financial globalization is a process leading to the structuring of major interdependence relations between all the participants and operators transacting financial actives in worldwide financial centers and, implicitly, between these centers. Although there is no unanimous accepted definition of globalization, it is one of the features of the contemporary market. From a pragmatic point of view, it represents all the burrowers and the investors that close transactions and 97 Knowledge Based Organization 2008 International Conference develop operations worldwide. For the financial institutions, globalization means their ability to answer to the demands of all the countries; in a larger context it is the level of all markets, market segments, financial-banking products and services. It must also be considered that nowadays buyers face a huge offer of all sorts of products. It is not surprising that the most flourishing firms are those that offer their clients the satisfaction they wish, as those firms understand marketing not as being distinct, but as a philosophy for the entire organization. Financial-banking services, as a subsystem of economy services, have been given special attention, considering the particularities of their consistency and structure. Thus the demarcation of banking marketing is the result of the special dynamics of the last decades in this field and of the specific particularities of banking services compared to the physical assets: being inseparable from the performer, being intangible, heterogeneity and perishableness. Considering the inseparability of production from the consumption, correlating services effectively carried out to the consumers’ expectations becomes the main interest. Banking services have generated new challenges for marketing; nevertheless, the main principle of consumer focus has not been altered. The particularities of banking services have determined the necessity of more changes in the marketing problems and tools, adjusting it to the case in which the producer and the buyer collaborate in carrying out services. At the same time, the hypothesis of the marketing universality was proved one more time. Increasing competition on the financial market has lead to diminishing profitableness. Under these circumstances, in order to “survive” banks had to vary their products and use all ways of promoting them. At the first stage, banking marketing was focused on researching market demand and stimulating and wining new clients. Wining new clients was based exclusively on reputation; banks were few and clients were also few. In the international practice, to fundament the content of banking marketing meant the research made by the great industrial and commercial companies. We must highlight the fact that literature does not offer a unique definition and study of banking marketing. Thus, the American school treats of marketing in 98 Knowledge Based Organization 2008 International Conference the commercial banks as the bank’s complex behavior program including two main aspects: banking market analyze and the development directions; the determination of methods in which the market can be influenced. Banks have to deal with simultaneously operating under complex and varied circumstances. The permanent monitoring and the continuous adjustment to the environment changes are major objectives of the commercial banks. By analyzing the international banking environment, there are some important changes that must be noticed: the political reorientation of the monetary authorities; the technological revolution which contributed to the free access to the market information and to a total transparency – preliminary conditions for an effective working of the financial markets; the software development allows nowadays the information to be processed and the current or speculative transactions to be carried on in rather large volumes. There is a series of interconnected factors that allowed marketing to enter the financial-banking industry: the development of general marketing, which can be widely applied in all fields, the intensification of competition, the diversification of the needs for financial-banking services, the change of lifestyles and the increase of the consumers’ demands, the appearance of new saving, crediting and transfer revolutionary products, the usage of the newest technology in banks, the introduction of liberal monetary policies and, last but not least, worldwide globalization. Banks understood the fact that they operate in a more dynamic environment, and in order to answer to the more and more sophisticated clients’ demands they adopted marketing strategies, which are concerned with the diversification of the products and services, the introduction of alternative distribution channels and becoming famous throughout serving. Financial-banking marketing is connected to the interest in improving the quality of the products/services offered and in serving clients. Organizations adopt quality standards, their own or international, client oriented, which are primarily meant to maintain the bank’s strength, its credibility and integrity, the development of the employees’ professionalism and solicitude, the decrease of the 99 Knowledge Based Organization 2008 International Conference time spent to deliver products/services, so that clients are satisfied. Under the circumstances of modern management and marketing and of the present development and evolution of banks’ activity, marketing is an important element of management. The diversification of banking products and services generated by the increasing competition between banks needs the identification of the consumers’ needs, the planning of issuing those products and services, testing them, determining their quality, offering them to the consumers. All these are possible because of banking marketing, a basic element of the banking strategy and management that allows adopting a politics concerned with solving the following issues: investigating the clients’ requests and satisfying their demands; focusing on an increased lucrativeness; motivating the bank’s employees by informing them about the importance of banking marketing; the bank taking social responsibilities by promoting products and services in accordance with the environment and the community where the institution works in. The present problems the East-European banks are confronted with are very varied by their nature. Firstly it is compulsory to adjust cost structure at the level of banking margin, as unifying services in the European Union countries and increasing the number of mergers reduce the cost of these services. Secondly there is the issue of drawing up strategies to maintain profitableness and to improve the management of financial, technical and human resources. In order to find a solution, the IMF specialists suggest four “golden” rules the banks should observe: to strictly obey the bank’s strategy of development – deviations from the chosen development direction puzzle and determine the diminishing of the clients and shareholders’ trust; to study thoroughly refresher courses at the level of each department in the bank; to offer a high level of banking diversification (the analysis of the way each department contributes to the bank’s profitableness); to establish a balance between stimulating the sales of financial services and controlling costs. In order to be integrated in the European banking system, banks and financial institutions create universal systems of selling products and services. Studying the development particularities of the European
100 Knowledge Based Organization 2008 International Conference service market is an essential condition for the Romanian banks, as our country is one of the quite new European Union members. As far as the Asian financial market is concerned, it includes a large number of financial centers in Tokyo, Hong-Kong, Shanghai, Singapore; their experience in investments, in managing the portfolio of the huge net of branches and agencies is really important to the Romanian banks. Using informational technologies in order to develop banking services is done not only in the Asian system, but also in the banking system all around the world. The Romanian bankers are extremely interested in the developed countries’ experience in improving the communication policy, the relations among the working group and “the behavior approaching toward management”. This concept includes the complex system of human relationships, within the bank, between the employers and the employees. The main objective is excluding conflicts among coworkers, drawing the staff in achieving good results. Thus, practice proves that the efficacy of the contemporary market economy, including banking business, depends in only a 1/3 ratio on the technical and material components. 2/3 are determined by the managers and staff’s intellectual potential. Many American banks use feed-back in order to have more efficient relations within the bank. Thus the “open doors” program allows any employee to address managers at any level; altogether with various purpose surveys, they are the main measures so as to prevent the gap between the bank managers and the employees. Creating a favorable environment in the Western banks is based on the following methods: reducing the gap between the client and the banker, the leader ethics, the client – the most important person, removing and avoiding conflicts. An important aspect of the communicational relations are the relationships with the clients and the attention they are offered. It is important to remember that “The client does not depend on us (the bank), we depend on him. We do not offer him any favor by working with him, it is him who gives us the opportunity of offering our services. Our job is to solve the client’s problems advantageously for him and the bank”. It is important to mention that in the bank’s activity with the clients, along with offering a high quality serving standard, the informal relationships are also developed. The German bank Koelner 101 Knowledge Based Organization 2008 International Conference bank is a good example, as it organizes informational touristy trips for its clients. The client, its requests and satisfying them are banking marketing landmarks. Banks not only have to accomplish financial operations, they also must offer quality consultancy to their clients, to explain the transactions possibilities, to offer the best solutions, which means to be interested in the client’s financial situation to be a good one. Western banks are extremely interested in forming the public opinion and are very involved in advertising. In the new economy, characterized by globalization, both the structure of financial markets and the consumers’ features will be altered as a consequence of using new informational and communicational technologies, of the free, facile and in real time access to all sorts of information from all over the world. The financial institutions will form corporations with trans-national activity that will offer financial products and services wide world integrated. The consumers’ typology and behavior will be changed, as the importance of the features belonging to a certain nationality will be diminished. The cultural global values will be enlarged and they will be adopted by consumers in all the countries. This does not involve the complete disappearance of the consumers’ personal identity, as, on the contrary, it will become even stronger and will be changed by accessing other cultural values that best fit their personalities. As a consequence of globalization, all the elements of the internal and external environment of the financial institutions will be influenced by the quick development in which informational technology and free access to information from any location in the world. Under these circumstances, rethinking the way that the marketing strategies of the financial-banking institutions are established becomes a necessity. When substantiating marketing strategies in the new economy one must consider the changes and the evolution of all environment factors whose action influence the activity of financial institutions.
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References [1] Goloşoiu-Georgescu L., Business of banking, Editura ASE, Bucureşti, 2002. [2] Kotler, Ph., Managementul marketingului, Ediţia a V-a, Editura Teora, Bucureşti, 2008. [3] Rue L.W., Holland Ph.G., Strategic management. Concepts and Experiences, Mc. Graw-Hill, Book Company, New York, 1996. [4] Bardus G., Raducanu E., Globalitate si management, Editura All Beck, Bucuresti, 1999.
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NEW REQUIREMENT IN BANKING MANAGEMENT
Asst. Prof. Bălăceanu Valeria Arina, PhD
Ecological University of Bucharest, [email protected]
Abstract Strategy and the strategic vision on processes, used as an effective tool with a complex role in the development of specific processes are some of the defining elements of modern management. The new requirements in banking management are interrelated with turning information into a main source of the economic development, altogether with the quick and spectacular changes of the information technology, which are reflected in the new management and communication techniques within organizations. As an extension of the classic management methods of organizing banking, management is about a certain banking strategy - it is about the effect of using capitals in profit. On its turn, marketing creates the image of the bank. The use of informational technology allows rethinking and restructuring the managing system thus appearing new valences of bank branches on the competition market.
Keywords: management, banking management, banking system, marketing
Modern management includes among its defining elements the strategy and the strategic vision on processes, using it as an effective managerial tool with a complex role in the development of specific processes. It is such a role that offers management a scientific feature always based on strategy. The organizational operating fields are an important strategic management tool which conditions the way the following processes develop. Using the concept is strongly related to the development of any organization, including the banking one. This development can be defined as a combination of products – markets in
104 Knowledge Based Organization 2008 International Conference the middle of the strategic option. When defining the ways an organization follows when it develops its activity, they are included among market strategies as development alternatives. Here are the main operating fields: Ö present services – present markets it is expressed by the action within the existing market with the present services. It is done by winning new clients, increasing sales per client and keeping the old ones. Ö new services – present markets it is about introducing new services on the existing markets. Many banks follow this strategy adding to the traditional services investments, insurances. Ö present services – new markets the existing products and services are offered within new markets. It means both identifying and winning new buyer segments, or going to new geographical areas. Ö new services – new markets there are new products on these markets. Banking management is a distinct type of management different from the organization management. The difference is given both by specific of banking and the ways and tools used by the commercial banks for profit. The banking management functions can be characterized as follows: Prognosis: Ö the analyses of the evolution of internal and external economic environment by drawing up market researches for each economic branch (the market research will be at the base of elaborating crediting policies); Ö the analysis of the best practices in technology so that the bank can choose the best informatics platforms in conditions of investment effectiveness; Ö the analysis of the law impact on banking caused by the European Union integration. Planning: Ö drawing up long term business strategies; Ö developing new products and services based on business plans for each product/service; 105 Knowledge Based Organization 2008 International Conference
Ö drawing up annual income and spending budgets. Organization: Ö drawing up and adjusting the organizatory structure considering the adopted development strategies; Ö developing/adapting the territorial net considering the client segments that the bank has as objective. Coordination: Ö central monitoring of risks (credit, liquidity, currency, income etc.); Ö delegating competences on levels of authority so that the management decisions involve more hierarchical positions and levels. Control: Ö observing internal norms and procedures and the banking law; Ö creating its own internal audit department ; Ö dually controlling each activity process; Ö monitoring the targets established by the shareholders through organizatory structures specially established. The new regulations and the current practice in banking risk management influence the organization of these institutions and their strategic decisions; they influence not only the ways of evaluating credit risk, but also including the operational risk when evaluating the requests for their own funds. Besides the financial evaluation, the data collecting and processing, processes and procedures will have to develop and adjust to the new requirements. The decisions about choosing clients, the country or the types of products and services offered will have to be altered considering the new requests and the possible consequences. This is why the banking management requests are very important; they regard the way in which the bank’s resources are used to maximize profit diminishing risk accordingly; the bank’s liabilities and assets; avoiding banking risks and achieving banking performances. Evaluating and controlling the risks that a credit institution deals with are very important - the credit risk, the market risk, the liquidity risk, the operational risk, the legal risk and the reputation risk. The most important aspects regarding the banking risk evaluation and control are: identifying risks, determining the probability of 106 Knowledge Based Organization 2008 International Conference appearance for each risk identified, determining the possible damages in case the identified risk appears, identifying risks and choosing the best measures to prevent them; designing an advanced data management system based on a performing informational application. Risk identification and control as far as bank are concerned is a management element that becomes more and more important, especially as the market goes through globalization and competition is even stronger, while regulations become more restrictive. In banking management, especially as far as requests concerning capital and risk management are involved, the European Union interests were complementary to those of the Basel Committee. This banking surveillance committee was established in 1974 at Basel (Switzerland) and it is made up by the members of the regulation authorities in Belgium, Canada, France, Germany, Italy, Japan, Holland, Luxembourg, Sweden, Switzerland, The Great Britain and United States of America, under the auspices of the Internal Regulation Bank. The role of the Basel Committee is to standardize current banking law in different jurisdictions. The Basel Committee initiatives are not laws, but the members observe its recommendations. The first inter banking international agreement called “Basel I” (1998) established a minimum report of 8% between the bank’s own capital and its exposure (the ponderate assets of the banks in the system, depending on risks). Practice proved that that it is impossible to establish an insuring report between capital and risk and that there may be cases when the limit may not be enough if the banks are exposed to significant risks. On the international level it was needed to assure a superior stability of the international financial market by a more efficient risk management. This is why in 2002 there was the second international inter banking agreement known as “Basel II”; it regards the requests that the financial status of the commercial banks must observe. According to this agreement, the signatory banks must dimension their own capital proportional to the risk taken, which is evaluated by some established ratings. Four Romanian banks applied in 2007 to the Basel II regulations, while the others postponed it up to January 1, 2008.The Basel II regulations came into effect at the beginning of this year, but they will become compulsory for all the Romanian credit institutions by 2008. 107 Knowledge Based Organization 2008 International Conference
The “Basel II” agreement1 deals with three main aspects: 1. minimum requirements that banks must observe regarding their financial status: it is mainly an improvement of the “Basel I” agreement, as it takes into consideration operational and market risk. Secondly, it is agreed that credit risk must be evaluated by the banks by using different calculating ways depending on their own requests (by internal rating systems). 2. increasing the central banks’ control on the commercial banks: considering the commercial banks’ strategies regarding their assets and the excessive risks they can take, they will decide whether a bank has got enough resources for financial intermediation; central banks can require higher standards that the minimum report already decided upon (more or less reserves depending on the bank’s risk profile). 3. increasing the market discipline and improving transparency: the regulations regarding transparency will oblige offering more public information about the reserve level, risks and the bank’s management.
Present orientations in banking management The main purpose of an organization is to survive on the market so that it has the stability of continuity, it can offer products and services that are useful for the consumers and it can offer a proper environment for its members. Ideas and the applications deriving from them are based on four hypotheses: the first one is about product quality. It costs less than non-quality. The second hypothesis is about staff. According to it, people are interested in the quality of their work and have initiatives in order to improve it. For this purpose they need quality tools, proper training (it eases quality improvement) and open- minded managers. The third one concerns organizations. These
1 Basel II uses a concept based on three criteria meant to offer financial stability to the banking system. The first criterion is the minimum capital requests; its purpose is to improve risk sensitiveness. Thus Basel II can require the calculation of a bank’s capital so that it can manage three major risk elements: the crediting risk, the operational risk and the market risk. Each of them has at least two or three evaluation methods depending on the level of risk sophistication. It is considered that other risks cannot be measured. The Basel I agreement was only partially about these aspects. In Basel I the risk of crediting was treated more simply, whereas market risk was evaluated post-factum. Operational risk was not analyzed. 108 Knowledge Based Organization 2008 International Conference systems are made of inter-dependent elements so that important issues they deal with overpass the limits of their functional compartments; the fourth hypothesis is about the primordial and inevitable responsibility of top management for the processes and products/services they offer so that to continuously improve them and the organization as well. In a banking unit, marketing investigates the economic and social environment the bank acts in; it adjusts its activity to the dynamics of the economic and social environment; it offers products and services that that satisfy all the clients’ requests and expectations. Thus marketing is an important means through which banks correlate their activity to the clients’ demands. The effects of banking marketing are beneficial to all the parties involved. Marketing is about client orientation by winning and keeping the clients. It is important that the relationship with the clients be strong. Considering the fact that banks must alter their policy also considering the clients’ requests, it means that banking products and services are also created with their help. Banking service marketing as well as banking services is a “special” marketing that has to sell an intangible product tangibly. After all, the products and services the banks offer are the same. They can only be differentiated by the way the client perceives them. The clients’ perception can be improved by an effective marketing and special interest which must be continuously supported in order to continuously improve quality and satisfy clients’ needs, requests and expectations. The client must feel important and he must wish to continue with the same bank. It costs a lot more to win new clients than keeping the old ones, so special efforts have to be made in order to keep them. Rating agencies classify banks by their financial performances; the fastest and the most popular classification is the one based on the size of their assets. The European Union wishes to create an unitary legal and institutional banking frame; this is why their specific regulations concerning these matters are observed by non-members countries as well (fighting and preventing launder money, risk management, financial status, etc).
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The analysis of banking performances made by rating agencies and financial supervision national authorities is based on specific indicators. The development of the Romanian banking system is part of the globalization trend that dominates world economy in the past decades, especially as financial services are, as well as informatics, one of the most intense segments in this field. Besides, the foreign capital on the Romanian banking market comes mainly from The European Union countries, thus contributing to the integration of the entire Romanian economy. Until recently all Romanian banks had oriented they product and service offers only towards some favoured legal entities – important national and multinational important society, that preferably export; thus they completely ignored the needs, requests and expectations of a large category of potential clients (other legal entities and especially individuals). Today there is a more dynamic and sometimes aggressive orientation towards individuals. In most of the cases, the offer of products and services is the main criterion when an individual who is a potential client chooses a bank. Consequently, the more the variety of banking products and services with few differences in their features, the more are the choices for the clients. The offer includes not only the costs and the commission but also all the other product or service characteristics such as the deposit date of payment and the credit interest rate, the total number of days before issuing and the validity of a card, formalities and forms that must be filled in order to get a credit, issuing a card etc. Banks are legally obliged to show all costs, to calculate and show the effective annual interest (EAI). It represents the total cost of a credit and includes, besides the interest rate, all the other commissions and taxes associated which are paid by the credit beneficiary all along reimbursement. Showing all costs and commissions is a very good thing, as all clients must be well informed about the final sum, thus reducing or even eliminating the possibility of misunderstandings. Some banks try nowadays to err potential clients by marketing ways, as they speculate the way EAI is calculated in order to advertise a smaller interest rate and thus the product becomes more attractive. EAI does not represent the total cost of a banking credit and it differs from client to client and from credit to credit. Each combination of 110 Knowledge Based Organization 2008 International Conference various credit values and reimbursement period means various EAI, even for the same product. In order to be 100% correct, EAI must be dynamically calculated; it must be personalized according to the credit period and value for each customer. People must be very careful and read the contract thoroughly in order to avoid any bad effect. Thus the client is happy and he returns to that bank for other products and services. The first and the most important marketing rule is to be perceived as different from the competition. Marketing must be done effectively and constantly in the message that is sent to the client in order to have the desired results. Besides the intrinsic characteristics of the service/products offer, client may prefer a certain bank because of the following aspects which derive from the direct interaction between the client and the bank. In our opinion, these aspects may be: the level of the net extension (the distance between the client and the bank), the way the bank’s operating hours is adjusted to fit the clients’ demands, the solicitude, the professionalism, the politeness and the patience of the bank employees, the atmosphere and the security feeling, the waiting period at the window, the banking service completion period, the system of collecting and solving the clients’ suggestions, the possibility of accessing one’s own account from any branch of that bank. Every bank tries to invent and design products and services as different from those of the competition, in order to find out how to be trusted and to win new clients and especially how to keep the existing clients. Most of the Romanian banks have foreign capital, from banks abroad which are used to functioning in different environments than the one in our country. All of them are to adjust their marketing decisions considering the specific conditions in Romania.
References [1] Coult H. V., Management in banking, Editura Pitman Publishing, Londra, 1990. [2] Derek F.C., Bank Strategic Management and Marketing, Ed. John Willey&Sons, NY,1986.
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[3] Georgescu-Goloşoiu L., Business of Banking, Editura ASE, Bucureşti, 2000. [4] Odobescu E., Marketing bancar naţional şi internaţional, Ed. Sigma Primex, Bucureşti, 1998.
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THE PERSONAL GUARANTEES IN CREDITING PROCESS
Asst. Prof. Bercean Radu, PhD
’’Spiru Haret’’ University, Blaj
Abstract The personal credit guarantees are juridical middles wherewith one or many persons are contracting with bank to pay the debt of the debtor, if he didn’t pays it. Banking bail represents a form of personal guarantee, in which the beneficiary of the guarantee becomes chirographer of the guarantor, whose satisfaction depends of the solvency of the guarantor in the day of term. The bail is characterized through suppleness and the formalism decreased, exercising a different attraction about banks as guarantee, because, in case of juridical clearance, they are offered another debtor in the place of the one funded out in bankruptcy and concerning this personal guarantee are no others concurrent creditors.
Keywords: the personal guarantees, the bail, the letter of banking guarantee, independent guarantee (autonomously), international guarantees, assurance contract, assurance policy, the brand name guarantee, the plan of business, cession of book debt, the moral guarantees, the juridical characters of banking guarantees, „Electronic Archive of Real Estate Guarantees”
1. Introduction In our opinion the guaranties are secondary resources of the of a credit refundment, that confers to the guarantied creditor certain powers (beyond the limits of general deposit and against this law) what has as results is ether the priority against others creditors, or the possibility as the in case of no execution from the debtor this must be 113 Knowledge Based Organization 2008 International Conference forced executed of his creditor or to execute another person, who has promised to execute the operation that revenue to the debtor.
2. Basic Concepts ¾ scientific hypothesis ¾ economic phenomenon explanation ¾ scientific observation ¾ statement of hypothesis ¾ hypothesis verification ¾ causal and factor analysis ¾ case study ¾ induction ¾ deduction ¾ economic measurement ¾ economic model ¾ hypothesis verification procedure ¾ economic experiment ¾ simulation ¾ economic scenario ¾ scientific conclusion
3. Results and Discussions The personal credit guarantees are juridical middles wherewith one or many persons are contracting with bank to pay the debt of the debtor, if he didn’t pays it. Banking bail represents a form of personal guarantee, in which the beneficiary of the guarantee becomes chirographer of the guarantor, whose satisfaction depends of the solvency of the guarantor in the day of term. The bail is characterized through suppleness and the formalism decreased, exercising a different attraction about banks as guarantee, because, in case of juridical clearance, they are offered another debtor in the place of the one funded out in bankruptcy and concerning this personal guarantee are no others concurrent creditors. The letter of banking guarantee, represents a commitment of irrevocable pay, which generates a free and abstract obligation of the bank against the beneficiary of the guarantee, as opposed of 114 Knowledge Based Organization 2008 International Conference fidejusiune which represents an accessory obligation which depends on existence and stretch of the chief debtor obligation This form of guarantee of a credit is considered safety because the erect level, at large in, of a bank solvency, as well as important liquidities of which this disposes. The independent guarantee, has the next specific features: Is a personal guarantee. Is based on a main contract. Is an autonomous guarantee.
4. The independence of the guarantee against the contractual basic relation which has been guaranteed Types of Autonomus Banking Guarantees a) The guarantee of assist at action b) The guarantee of good execution c) The guarantee of give back the advance International guarantees a) Guarantee of good operation (or of good technical execution) b) Guarantee of pay c) The guarantee of opening of banking assets d) The guarantee of good execution of export licenses e) The guarantee of temporary inlet f) The guarantee of compensation for previous export g) The guarantee for quotas of afflux h) Credit letter (assets) stand-by Guarantees in Romanian foreign trade For the payment of the contracted commitments in the behalf and account of the state, EXIMBANK offers the guarantee of export and import credits, insurance and reinsurance of those, in the name and behalf of the state, through : a) Letters f banking guarantee of restitution advance b) Letters of banking guarantee of good execution c) Letters of guarantee of good operation e) Letters of banking guarantee for assist in auction f) The guarantee of complex exports and of products with long cycle of fabrication. - Guarantees for participations to international auctions; 115 Knowledge Based Organization 2008 International Conference
- Guarantees for the restitution of the advance ; - Guarantees for good operation of external advance; - Guarantees for good restitution of counter value of the equipments and materials given at disposal, contractual, by the beneficiary. g) The guarantee of external loans h) The guarantee for capitals of work The governmental guarantees are granted by the executive power of the state for the credits granted by the banks. Although theoretical these guarantees represent maximums of security, they are avoided. The insurance contract for non-payment of the installments of credit and afferent interests is a variant of the bail contract wherewith the assurance society guarantees the obligations payment to the bank against the bonus of assurance. The credit guarantee was among the first types of guarantees emitted of the assurance companies because of simple procedure, that is fast and cheap, eliminating the disadvantages of assurance policy, whose procedures are heavy to execute, and the jobs offered the minimum by-paths. It presented below two forms: the insurance policy and the assurance contract.
A. The insurance policy
Insures
1 3
2 Bank Debtor
1. The contract 2. The loan charterage 3. The bank retrieves the loan from the insurance company
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B. Insurance contract
Insures 5 4 3 2
1 Debtor Bank
1. Credit contact (the obligation of unpayment risk insurancee); 2. To request the ensurance house to issue a guarantee in favor of the bank; 3. The guarantee is deposit at the bank; 4. If the loan is returnd, the guarantee is also return back (the document); 5. The guarantee execution. Through the insurance contract, the guarantee is repidly executed in base of a written claim and guarantee depiction, the ensurance company automatic pays the amount guaranteed to the bank.
Exemples of insurances bill
a) The export credit insurance bill, on long and medium term b) The insurance bill, on short term, in acount of the state, of unpayment risc at extern EXPORTER IMPORTER
The resources bank of exporter The ensurance contract(Bill)
Comitetul Interministerial de EXIMBANK Garanţii si Credite
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c) The insurance bill of romanian capital investment in foreign countries, on medium and long term, in name and acount of the state. The firm guarantee is based on the relation between the bank and the loaner to unfurl the cashing and payment through the bank. The bussines plan, can pe taken into guarantee by insurance the bussines viability. Fidejusiune is a contract: - accessory, where results the possibility to invoca beneficiul de discutiune si diviziune - consensual - onside - with free title.
5. Concluzions At the granted of a credit counts that the main source of reimbursal is the client quality to generate a positive cash-flow, the material guarantees taking a secondary place. The bank didn’t accept to credit a business for capitalization the guarantees in the end. The guarantees are used in case of debtor bankruptcy, to cover, through capitalized procedures, the uncovered debt by the beneficiary of the facilities offered by the bank. In present the risk of credit management procedures are using a dual system that evalues in the same time both situations of the debtor and creditor. The solution preferred for a problem credit is to renegotiate the action plan in order to try to save both the bank and the client from possible losses.
References [1] Bercean, Radu, The guarantee system in banks – Summary of master`s degree, U.B.B. Cluj-Napoca, Economic Science and Business Management College. [2] Bercean, Radu, Moneda si credit, Editura Silvania, 2008. [3] Bercean, Radu, Contabilitate Bancara, Editura Silvania, 2007. [4] Bercean, Radu, Management Financiar – Bancar, Editura, Silvania 2007.
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THE CAPITALIZATION OF THE BANKING GUARANTEES AND RECOVERY OF UNPERFORMED CREDITS
Asst. Prof. Bercean Radu, PhD
’’Spiru Haret’ University’, Blaj
Abstract To the guarantee value settlement, the bank must take notice of the risk effects, of the nonpayment capacity of obligation at the established term by the client, but more important the guarantee risk, meaning the difficulties that could appear to the sealing of goods brought as guarantee, in case in which the bank burn passes to the forced execution. Because of this the bank must take notice at the establishment of a guarantee value of his degree of liquidity, vendibility and control, respectively the degree of safety, which can be maximum, average and uncertain guaranties
Keywords friendly way, juridical path, execution title, personal forced execution , real estate forced execution , juridical reorganization and bankruptcy , solvency, guaranteed debts, A.V.A.S., goods indisponibilization
1. Introduction The guaranties have certain functions as follows: 1. Patrimony function 2. Preferential function 3. Recovery function 4. The function to lower or to eliminate the risk of losses 5. Assures the simulation of respecting the contract 6. Assures the credit security 7 Credit function
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8. To assure the liquidities savement. 9. the most important function of the guarantees is the one to insure the credit. The guaranties assure the static security and the dynamics one.
In the guarantee process appear the next elements:
Business/ credit Applicant
Guarantor
Guarantee
Value of guarantee
Form of guarantee
Period of guarantee
The establishment of the guarantee
The insurance of the guarantee
Guarantee control
Guarantee preservation
Credit reimbursement Lack of credit reimbursement
Interest payment Lack of interest payment
Guarantee receivement Execution of guarantee
Revaluation of guarantee goods
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2. Basic Concepts ¾ scientific hypothesis ¾ economic phenomenon explanation ¾ scientific observation ¾ statement of hypothesis ¾ hypothesis verification ¾ causal and factor analysis ¾ case study ¾ induction ¾ deduction ¾ economic measurement ¾ economic model ¾ hypothesis verification procedure ¾ economic experiment ¾ simulation ¾ economic scenario ¾ scientific conclusion
3. Results and Discussions The capitalization of banking guarantees represents a part of the banking management that has as objectiv, in steps mode the follow are recovery of the unperformed credits through setting new time limits of the litiguatind or unpaied credits, on friendly way or forced execution, and it could be userd even the reorganize judicial or bankruptcy procedure of the debtor society. The recovery activity of unpaid credits is realized in two ways : 1.Friendly way 2.Juridical way The juridical forced execution procedure represents and exeption purpose, disliked of recovery the banking debts, being preffered the friendly way of recovery, that is more efficient towards the juridical one that is hardly and needs extra expenses. The forced execution could take place using an execution title represented by the credit and guarantee contract invested with execution formula. Forced execution can br:
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- direct, when the creditor whants to obtain the achieval in nature of his debt, that isn’t used only in certain cases of banks. - indirect, when the bank follows to achieve the debt from sealing the goods of the debtor, by bloking the sums this has to receive form thirds, or, in case of juridical persons that have banking acounts, by sending the sum into the creditor account, or can take the form of personal forced execution, of bloking, of chasing unharvest fruits or those cought in roots, and of real estate chasing. To realize a debt can be used the personal forced execution procedure, and the bloking or the real estate forced execution procedure. There is execution title, the contracts or conventions of credit between the bank and the debtor or other establish titles of debts, documents that were used to made personal or real contracts, after their investment with execution formula to retrieve those debts. The blocking permits the creditor bank to income the debts of every holder, in relations with thirds, is the chased debtor itself. The blocking assures the bank a rapidly and fast way to capitalize her debt, making lower the bank risks as debtor. This would permit the creditor, here to the bank, to income the unpaid credit at the next term, towards the capitalization of personal or real estate guarantees were didn’t exists any certain regarding the price that will achive by their forced capitalization. Through this procedure it is avoited the direct contact of the creditor bank with the cased debtor. The blocking is made without preliminary summons of the debtor, having as characteristic the surprize element and is made from indisposition of the sums with the third obligation to pay to the creditor bank. In case of blocking of banking acounts, we consider that the judge must investigate is there is a sum of many in the account that could be transferred into the creditor bank acount. The execution of real guarantees is made after the execution procedure settled in Code of civil procedure or settled in Law nr. 99/1999. The creditor has the right to retrieve his guarantee from the good that was guaranteed, and to take into possession the products realized from its capitalization, and the titles and written papers that 122 Knowledge Based Organization 2008 International Conference gives the property right of the debtor to the good, without needing any allowance or previous notification and without paying any taxes. The procedure is applied only to personal real guarantees. Their advantage is its simplicity, towards the execution procedure settled in Civil Procedure Code. The creditor bank must sell the good that was guaranteed in a commercial manner that is to assure the best price through direct sell towards a third person, selling through auction made public in papers, selling on public market or any reasonable selling way, commercial for the types of goods that are to be sold, the creditor takes the one that is sure that obtains the best price. Personal forced execution by the civil procedure code supposing: a) The identification and sequester of the goods; b) Goods sealing; The chasing creditors can’t buy the goods offered for sale at a price lower than 75% of the price at what the auction started. The real estates that are forced chased are capitalized by public auction, direct sealing and other ways. This procedure has more steps 1 The verbal report of situation 2. Publicity 3. Sealing 4. Buying act In case of forced execution, the credit titles in general or the order bones in white, are useful in banking practice because can be transformed in execution titles in a fast procedure and without appeal, giving a superior security to the bank debt. In case of sealing the goods given as guarantee for debts, or mortgage, or other real rights taken after any real guarantee was registered on those goods, the executor is obliged to notice the creditors in favor of who these debts are made, in order to receive the price. Those have preference to receive the sums, being satisfied completely and afterwards are given to other creditors. In case of forced execution of the Warrant, without judicial formalities, the warrant possessor can ask to the emitter of the warrant paper the selling in public auction of the guaranteed goods. The exercise of this right is not suspended in the case of continue of the 123 Knowledge Based Organization 2008 International Conference bankruptcy procedure or juridical reorganization of the debtor, neither in the case of the death of the bank debtor that guaranteed the warrant or of the goods owner.
THE CAPITALIZATION OF BANKING GUARANTEES IN CASE OF BANKRUPTCY AND JUDICIAL REORGANIZATION
In order to start this procedure, the bank is obliged to prouve the bankruptcy status or to declare it, that is the existence of a certain debt, liquid and due, and the fact that this wasn’t paid in the term of 30 days from the limit time, for what was made a real guarantee. The guarantee debts with a personal guarantee are considered writhed. The creditors are keeping their auctions against co-debtors. The non-guaranteed parts from the guarantee debts represents that part of the debt made for didn’t exists a real guarantee or legal purpose of preferences because the debt is not legally guaranteed, because for this part of the debt the bank being a simple creditor. The goods can be capitalized individual or in common meaning a working ensemble, case in which is needed the plan approval by the guaranteed creditors over the good. The plan of giving the sums between the creditors shows the way that these are handed in bankruptcy procedure. This keeps of the bankruptcy essence, which represents a joint forced execution, towards the other procedures that are individually. The recovery ways of the debts in the bank bankruptcy situation can be divided in two: a. friendly way; b. juridical way
THE CAPITALIZATION OF BANKING ASSETS AND GUARANTEES THROUGH STATES AUTORITIES (AVAS)
The credit contract that reached at the settling day, contracted between the banks and debtors, taken by the authority are execution titles, and as an exception, without being needed the investment with execution formula.
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The contracts and the credit conventions between the bank and the debtor as the acts that were at the base of the real or personal guarantees for retrieval of those cession debts, are execution titles. In case of contracting confessions of repaying of debts through which brings up to date the credits values and of guarantees, has power of execution title. The execution title is it transmitted to the debtor and it is put on execution without any formality, bypassing to force execution. The authority orders by order the blocking of banking accounts of any nature, that the debtor owns in any bank, no matter the coin in which are made. At the request of the authority the judge can allow the distrain of the auctions and social parts and the special administration at the commercial company that makes the yelling debtor. The forced execution starts after the execution title is transmitted with mention that the free non-payment of the credit in 5 working days from the reception gives the right to creditor to proceed to forced execution without other summons. The forced execution procedures represents exceptional means, not-likely to use to recover the banking debts, the banks using more the friendly ways of retrieval. We recommend the retrieval of unpaid credits on friendly way on purpose to avoid the juridical way that is more difficult and involved secondary expenses. The most effective procedure of forced execution is the one that refers to real personal guarantees as its shown in Chapter V, title VI from Law nr. 99/1999 also because the advantages of establishment the principal degree in which the deposit was recorded by informatic system offered by “Electronic Archive of Real Estate Guarantees”, what makes this to be one of the most effective procedures of forced execution. If the debtor didn’t fulfil his obligation, the real personal guarantee gives the right to the crediting bank to take into possession or to restrain the good given as guarantee and the right to sell it in order to obtain the payment of the debt guaranteed. The auction selling isn’t made through auction but through Bucharest Stock Exchange or RASDAC. 125 Knowledge Based Organization 2008 International Conference
Forced execution is made when the obligation has become real and due, and didn’t concern his liquidity. The executor role is only to put in possession the good, the ways of execution remaining at the disposal of the bank as a chasing creditor, who becomes executor for recovery of his own debt, having the possibility to give this power to a third person. In this situation we consider that the law is in favor of the creditor opposed to the previously period ahead of changing of the civil procedures when the law was most in favor of the debtor, making him a better situation opposed to his creditor. At the same as the mortgage, the personal goods are good to be offered as guarantee, for many times, one after another. As mortgage that exists on ranks, regarding real estates can be made on the same good more guarantee contracts. As opposed to the common laws, that offers a good settlement to attack ways against the execution – in keeping with Law nr. 99/1999, is settled the simple form of opposal at the selling of the good. The measures taken by the creditor concerning the execution of personal real guarantees didn’t suspend as outcome of starting the procedure of bankruptcy or judicial reorganization. In this way, the part that fulfil the publicity formalities for third opposed, can request to the judge the taking into possesion. A form of satiate of the creditor is taking the good affected to the guarantee in the debt account. Althout he can’t receive the good, without that first to give the possibility to thirds to attend to the sell. The good that was retrived by the creditor is free of any obligations, exepting the ones registered before his guarantee. If regarding the third buyer is understood the release of the sold good of all obligations because it was guiltiness and can’t be put responsible for another one, the ex creditor knew the risk of existence of those obligations, taking it. It is likely the movement guarantees with the mortgage of the same real estate several times, on ranks. It is made a law more useful to the third person which, for justice, can’t be hold to respond for obligations that he didn’t knew at the right time. 126 Knowledge Based Organization 2008 International Conference
4. Conclusions Even if the real estates guarantee represents the most solid guarantee given to a credit, the forced execution procedure can necessitate long time because of the possibility that to the creditor bank be opposed exceptions stipulated in the law. The forced execution procedures, are final processes. On the contrary, it is waiting that the procedures system, ways and instruments to become more efficient because there are some notions from the old Civil Code from 1864, insufficient and overall, in many circumstances.
References [1] Radu, Bercean, The Guarantee System in Banks – Master`s Degree, Universitatea Babes - Bolyai, Cluj Napoca, 2005. [2] Bercean, Radu, Monedă şi Credit, Editura Silvania, Zalău, 2007. [3] Bercean, Radu, Contabilitate Bancară, Editura Silvania, 2007. [4] Bercean, Radu, Management Financiar – Bancar, Editura Silvania, 2007.
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THE GUARANTEE BANKING SYSTEM IN CREDITING PROCESS
Asst. Prof. Bercean Radu, PhD
’’Spiru Haret’’ University, Blaj
Abstract The guaranties system is split in two systems: 1. The credit guarantee system 2. The system of guaranteed funds The real guarantees are juridical middles of guarantee, which assure the bank two attributes: for choice or of pursuit. The main characteristic of the guarantees contract represents their indivisibility, which the good guarantees the whole credit and until this is reimbursed to bank and ask the interests paid by the client, the guarantee remains. These contain: real personal guarantees, mortgage, banking deposit and the privileges. The personal guarantees are juridical middles wherewith one or many persons are contracting with bank to pay the debt of the debtor, if he didn’t pays it. Banking bail represents a form of personal guarantee, in which the beneficiary of the guarantee becomes chirographer of the guarantor, whose satisfaction depends of the solvency of the guarantor in the day of term.
Keywords: crediting risk, guarantee risk, guarantees, the elements of a guarantee, systems of the guarantees, the real guarantees, the real personal guarantees, the real personal guarantees with deprivation and without deprivation, mortgage, banking deposit (collateral cash), the right of general deposit, privileges, the personal guarantees, the bail, the letter of banking guarantee, independent guarantee (autonomously), international
128 Knowledge Based Organization 2008 International Conference guarantees, assurance contract, assurance policy, the brand name guarantee.
1. Introduction Despite innovations from financial sector, the risk of credit is for far the most important cause of banking bankruptcies. As part of crediting politics are made management procedure for the crediting risk in which is made a standardization concerning the customer evaluation and portfolio of existing credits, rating procedures of credit that are to be granted as well as a periodical revaluation of credits In these conditions, a factor in taking managerial decisions concerning crediting, which limits the risk of credit, the real handspike of management regarding the charterage of the credits and the retrieval of guarantees, is represented by the guarantee system.
2. Basic Concepts ¾ scientific hypothesis ¾ economic phenomenon explanation ¾ scientific observation ¾ statement of hypothesis ¾ hypothesis verification ¾ causal and factor analysis ¾ case study ¾ induction ¾ deduction ¾ economic measurement ¾ economic model ¾ hypothesis verification procedure ¾ economic experiment ¾ simulation ¾ economic scenario ¾ scientific conclusion
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3. Results and Discussions
THE GUARANTEE BANKING SYSTEM IN CREDITING PROCESS
In our opinion the guaranties are secondary resources of the of a credit refundment, that confers to the guarantied creditor certain powers (beyond the limits of general deposit and against this law) what has as results is ether the priority against others creditors, or the possibility as the in case of no execution from the debtor this must be forced executed of his creditor or to execute another person, who has promised to execute the operation that revenue to the debtor.
As follows the guarantees the next relation is taking nature:
Chief accountant A 4
1 2 3 6 Garantor C
5 Beneficiary B 6
1. Between A and B is taking place a commercial business (a credit contract); 2. B ask A to guarantee the credit; 3. A can guarantee the credit with his own goods (material or financial); 4. A ask a third person to guarantee; 5. The guarantor of the guaranties or he oblige himself to fulfill the debtor obligations; 6. The beneficiary executes the guarantee in case of he didn’t carry out the obligation taken through the credit contract.
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In the guarantee process appear the next elements:
Business/ credit Applicant
Guarantor
Guarantee
Value of guarantee
Form of guarantee
Period of guarantee
The establishment of the guarantee
The insurance of the guarantee
Guarantee control
Guarantee preservation
Credit reimbursement Lack of credit reimbursement
Interest payment Lack of interest payment
Guarantee receivement Execution of guarantee
Revaluation of guarantee goods
To the guarantee value settlement, the bank must take notice of the risk effects, of the nonpayment capacity of obligation at the established term by the client, but more important the guarantee risk, meaning the difficulties that could appear to the sealing of goods brought as guarantee, in case in which the bank burn passes to the forced execution.
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Because of this the bank must take notice at the establishment of a guarantee value of his degree of liquidity, vendibility and control, respectively the degree of safety, which can be maximum, average and uncertain guaranties. The guaranties have certain functions as follows: 1. Patrimony function 2. Preferential function 3. Recovery function 4. The function to lower or to eliminate the risk of losses 5. Assures the simulation of respecting the contract 6. Assures the credit security 6. Credit function 8. To assure the liquidities savement. 9. the most important function of the guarantees is the one to insure the credit. The guaranties assure the static security and the dynamics one. The credit guaranties can be classified from many points of view but they are as follows after their nature: 1. Real guaranties 2. Personal guaranties. 3. Cession debts. 4. Moral guaranties. 5. Financial guaranties. The graphics representation of the guarantee system and his elements are shown in fig.1.
6
4 Parts involved Relationship between parts 2 3 1 The elements of the guarantee The classification of the guarantee The applied procedueres
5 7
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Fig.1. the guaranties system guaranties are: 1. The system guarantee functions 2. The incoming dates 3. The obtain results 4. Activities in system frame 5. The conditions of development 6. The way of development of informatics’ system from banks and industrial units The guaranties system is split in two systems: 1. The credit guarantee system 2. The system of guaranteed funds In ground of the decision of credit the primordial place has the real customer capacity of pays his obligation from the funds resulted from the credited business. The role of the guarantee is the bank protection of the losses that can be inducted by the non-observance of the loaner obligation against the bank. The guaranties system permits the bank to choose the most proper guarantee form taking notice of the quality and the financial performances of the client, the market degree of interest for the certain good, the good features, and the stability in time of the goods value, the contract form and the society reputation The real guarantees are juridical middles of guarantee, which assure the bank two attributes: for choice or of pursuit. The main characteristic of the guarantees contract represents their indivisibility, which the good guarantees the whole credit and until this is reimbursed to bank and ask the interests paid by the client, the guarantee remains. These contain: real personal guarantees, mortgage, banking deposit and the privileges. Real personal guaranties are characterized through suppleness and elasticity, conferring to creditor a bigger safety and debtor a freedom in disposals paper regarding the goods that guarantee the obligation. The real guarantees and the tasks made on personal goods, which fulfill the publicity condition from the moment of registration notice of real guarantee to AEGRM.
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In case of dematerialized values, the guarantee made on the account, in our opinion this overall being a progress because facilitates the administration of debt personal values. Real personal values (deposit) can be: - With deprivation - Without deprivation having juridical equal force; The personal guarantees are juridical middles wherewith one or many persons are contracting with bank to pay the debt of the debtor, if he didn’t pays it. Banking bail represents a form of personal guarantee, in which the beneficiary of the guarantee becomes chirographer of the guarantor, whose satisfaction depends of the solvency of the guarantor in the day of term. The bail is characterized through suppleness and the formalism decreased, exercising a different attraction about banks as guarantee, because, in case of juridical clearance, they are offered another debtor in the place of the one funded out in bankruptcy and concerning this personal guarantee are no others concurrent creditors. The letter of banking guarantee, represents a commitment of irrevocable pay, which generates a free and abstract obligation of the bank against the beneficiary of the guarantee, as opposed of fidejusiune which represents an accessory obligation which depends on existence and stretch of the chief debtor obligation This form of guarantee of a credit is considered safety because the erect level, at large in, of a bank solvency, as well as important liquidities of which this disposes. The independent guarantee, has the next specific features: Is a personal guarantee. Is based on a main contract. Is an autonomous guarantee.
4. The independence of the guarantee against the contractual basic relation which has been guaranteed BT CESSION The cession debt is a contract through a creditor transmits his creante witch corespunds payment obligation, to another person.
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The cession is contracted in the moment that the parts are agreed on the terms THE MORAL GUARANTEES The bank must analyseand and develop aspects regarding the client tr]s]turile de caracter ale clientului: The moral guarantees estimatedin the transition period has taken to unperformant credit raising in the bank portfolio and even to bankruptcy.
4. Concluzions As follows the analyzes made over the guarantees, it has reached at the conclusion that the most used are the real ones (mortgage and real personal guarantees), and an important mean has the banking deposit (collateral cash) and the cession in favor of the bank of the rights of compensation form assurance companies. The mortgage is preffered to outher types of guarantees, because represents higher credibility and stability, even if it is more difficult to capitalize in case of non-retrieval of credits at time limit. The deposit hase the dissadvantage that the goods taken to deposit, because of their fizical and moral worn out generates the garantee risk, that grows as the reimburs time is higher. The guarantee risk means that because the fizical and moral worn out the goods are losing its value and can’t cover the value of credit and debts in case of forced execution, meaning that the have no market covery value and the price becomes ridiculous. At the granted of a credit counts that the main source of reimbursal is the client quality to generate a positive cashflow, the material guarantees taking a secondary place. The bank didn’t accept to credit a business for capitalization the guarantees in the end. The guarantees are used in case of debtor bankruptcy, to cover, through capitalized procedures, the uncovered debt by the beneficiary of the facilities offered by the bank. In present the risk of credit management procedures are using a dual system that evalues in the same time both situations of the debtor and creditor.
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The solution preferred for a problem credit is to renegotiate the action plan in order to try to save both the bank and the client from possible losses.
References [1] Bercean, Radu, The guarantee system in banks – Summary of master`s degree, U.B.B. Cluj-Napoca, Economic Science and Business Management College. [2] Bercean, Radu, Moneda si credit, Editura Silvania, 2008. [3] Bercean, Radu, Contabilitate Bancară, Editura Silvania, 2007. [4] Bercean, Radu, Management Financiar – Bancar, Editura, Silvania, 2007.
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THE MANNER OF APPROACH AND WAYS OF ENSURING FINANCIAL BALANCE
Asst. Prof. Căruntu Genu Alexandru, PhD
’’Constantin Brâncuşi’’ University, Târgu-Jiu, [email protected]
Abstract A fundamental requirement for ensuring and maintaining normal function of the plant's mechanism is the existence of financial equilibrium, it appears justified the need to find means and ways most appropriate in order to characterize the quality of financial activity, through the way in which is achieving, both in program and running phases. This, in the context in which, through the law statuted the transition to a market economy, it is established that the basic objective of the financial activities of companies is providing and maintaining financial balance.
Keywords: the liquidity balance sheet, the functional balance sheet, static balance, macro-system, The financial equilibrium.
The financial equilibrium of the enterprise is a component of financial macro-economic equilibrium. But the fact that is a component dependent on the financial balance to gross economy level, does not mean that the micro-economic financial equilibrium don't have own features, own rules for establishing and maintaining. Taking into account these provisions, the financial equilibrium of enterprise may be defined as that state of correlation between the amount of resources needs to ensure the normal conduct of business on the one hand, and the possibilities of purchasing them, on the other hand. The micro-economic financial equilibrium is determined by the manner how the company ensures the use of funds raised in wealth, but at the same time, conditioning by macro-system. The macro- 137 Knowledge Based Organization 2008 International Conference system sets through the legal system of financing and lending of the national economy, the normal possibilities, so in concordance with the law, of funds procurement.
Ways of approaching the micro-economic financial balance The information source that underpins financial equilibrium microeconomic analysis is the balance sheet as a synthetic, representative and suggestive document of total activity of enterprise. Although offers extremely important news on various resources that the company has and how to use their, the balance sheet does not permit the establishment of a direct financial diagnosis, but assumes certain restatement and reshuffling of some posts or accounts in relation to the objectives of the analysis and the analyst concepts about the concept/notion of financial balance. In financial theory and practice were outlined in time two different concept approaches of financial balance: ¾ an liquidity approach that stems from a static analysis of business enterprise and which privileges the notion of floating capital; ¾ a functional approach which stems from an analysis of the dynamics of business enterprise and that brings in the foreground, the notion of need floating capital. The difference between the two approaches are published for the purpose of analysis, namely, to surprise financial balance in terms of assets solvency at a time, or the evolution of exploitation cycles. Starting from the balance sheet, depending how to approach a financial balance, it builds a financial statement which may be: ¾ the liquidity balance sheet; ¾ the functional balance sheet; 1. The liquidity balance sheet is built accordingly to creditors point of view (banks or other businesses) that the assets of the enterprise are able to ensure repayment of debt incurred. In this optic, the assets are classified by their fast transformation in currency and the liabilities after their increasing chargeability resources. It should be noted that, broadly, the balance sheet is built according to this optical. The element of demarcation in terms of
138 Knowledge Based Organization 2008 International Conference liquidity and chargeability is the year. Thus, the capital is divided into 3 categories : ¾ own capital, the resources less due; ¾ liabilities on medium and long term, with maturity of more than a year; ¾ liabilities on short-term, with maturity less than a year; The asset of balance sheet is, in turn, divided into: ¾ sustainable assets with fixed term of existence in business for over a year; ¾ operating assets, circulating assets, during the rotation for less one year. Based on the liquidity balance sheet, build on this manner, we are able to determine a liquidity floating capital (FRl) by two ways of computing: FRl = Cp - AIn FRl = ACc - Dts consisting of: Cp = permanent capital (equity and medium and long term liabilities ); AIn = net fixed assets (gross fixed assets minus depreciation); ACc = reclaimed assets; Dts = short term liabilities; This illustrated analysis has two reproofs: ¾ although it starts from the premise of stopping the exploitation and liquidation of company, does not have regard to any addition or sub-values that would result from the process of liquidation, which would be possible if it holds the necessary information; ¾ the balance sheet liquidity, not appears separate the treasury. The purpose of the analysis - liquidity is therefore examination of enterprise solvency degree enabling analysis before undertaking any risk to creditors. Solvency is put in evidence of the existence of a revolving fund positive because: ¾ short-term solvency is assured, assets under a year being higher then debt under a year;
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¾ allows the face of a possible deterioration of the rotation of assets and liabilities of less than a year. ¾ is a presumption of an easier treasury allowing to absorb the delays in collection of receivables short-term debt or accelerate on short term. Analysis - liquidity, however, presents certain limitations, as follows: ¾ does not reveal the optimum level of revolving fund; ¾ are placed in an liquidation optical which is not typical of most enterprises; 2. Functional Balance Sheet answers to the interests of broader categories of recipients: investors, shareholders, managers, suppliers, staff. He puts the company in a context of continuity of operation and no clearance where the term "functional" and highlights the fact that it is not sufficient to fund fixed assets with permanent capital and to have such a positive revolving fund But should also ensure the financing needs generated by operating as a genuine investment. In this approach, the size of the revolving fund has a relative importance as the financial relationship is defined by its need for funding the operation, also by the need for floating capital. This concept entails, so: ¾ a new definition of the treasury in terms of resource-use, rather than revenue-payments. Treasury is the difference between advanced and resource needs of business involved; ¾ a new perception of the balance sheet, as follows
Use Resource The need for floating Floating capital capital Treasury net negative Treasury net positive ¾ a new approach to financial balance, so: T = FR - NFR consisting of: T = treasury; FR = floating capital; NFR = need for floating capital;
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The functional approach is based on theory of cycles, a cycle defined itself as a sequence of operations with a certain regularity and a corresponding functions of the company. It is distinguished such: the investment cycle operations, the current cycle of operations (operating) and the treasury operations cycle. It follows, therefore, that the functional balance gathers balance sheet items with respect to these cycles, highlighting for each uses, indicators such resources, so:
Cycle Use Resources Indicators Equity Investments Gross assets (including self FR financing Liabilities on medium and long term Exploiting Gross non- Exploiting debts NFR fixed assets Treasury Availables Currently bank T credits
Transposition of balance sheet in a functional balance involves the following restatements: ¾ active posts are taken with their gross values, and in counterpart, against the liabilities to equity are added amortization and provisions for depreciation. In this way, the fixed assets reflects the investments made; ¾ bogus assets resulting in capital subscribed and paid or expenses recorded in advance are removed from the active and, in return, deducted from shareholders' equity; ¾ conversion differences are canceled, all transactions in foreign currencies are reflected in the amount depending on the history course; ¾ dividend to be pay is not diminishing capital since the acceptance of cold-working they are obligations that can be postponed; ¾ are not make any style of the assets and liabilities as the criterion lower or higher than a year.
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Functional balance is composed of the following weights: 1. sustainable use → stable resources; 2. gross assets operating → circulating liabilities of exploitation; 3. exceptional and financial assets → exceptional and financial liabilities; 4. positive treasury → negative treasury By their comparing results: Resources stable - Sustainable Utilization = FRNG Gross assets of exploitation - Liabilities operating circulating = NFRE Financial and exceptional assets – Exceptional and financial liabilities = NFRAE
NFRG = NFRE + NFRAE T = FRNG - NFRG consisting of: FRNG = fund net overall capital; NFRE = need to fund operating capital; NFRAE = need for floating capital out of operation; NFRG = need for global capital fund; T = treasury
Functional analysis places at the center of attention funding NFR and appreciates the financial situation through the treasury situation. In a review functional balance sheet, the uses are made of capital invested reflected in fixed gross assets and NFRE. Financial balance is met when the stable resources covers the gross fixes assets and NFRE. It can then calculate the margin of safety (MS) as the difference between stable resources and gross fixed assets plus the need for floating capital, or MS = FRNG - NFRE For a full analysis of financial balance should be continued through the calculation and interpretation and other instruments, namely the various categories of rates. Thus, based on the balance sheet - liquidity is determined rates liquidity(general, immediately) and the financial autonomy, and based
142 Knowledge Based Organization 2008 International Conference on functional balance sheet, the rates of imbalance (treasury in the days from total turnover, turnover margin of security in the days of turnover, credits banking day of the turnover, the percentage of the revolving fund and the need for floating capital, or bank loans and the need for floating capital) and rates of rotation (the need to fund operating capital in days of turnover, length of credit granted to commercial customers, the duration of trade credit received from suppliers, the rates of rotation of stocks of raw materials, finished products, etc.). Whereas fixed assets are financed from capital standing, the problem of the financial balance is reduced, ultimately, to ensure consistency between the revolving fund and the need for floating capital. A special interest, however, presents the status of knowledge of financial instrument, namely a surplus of resources or imbalance during the period. To do this we will plot a situation to the company whose turnover increased regularly, growth can be real or, in some degree, fictional if we have the inflationary process (fig.1).
FRN NFR y5=CA
C y4
y3
F y2
y4 D y1 A y1 G
B 0 1 t
Fig.1. Analysis based on liquidity balance sheet consisting of: y1 = FRN to the end of previous year ; y2 = FRN = medium floating capital; y3 = NFR; y4 = FRN during the period ; y5 = CA. 143 Knowledge Based Organization 2008 International Conference
It finds, therefore, that the need for floating capital increases the same manner with turnover in the normal use of circulating assets. Revolving fund determined as the difference between permanent capital and fixed assets at net book value will increase at a rate higher then turnover and the need for floating capital area, due the fact that a part of the net profit achieved during the period is not shared by destination, distribution is made only at the end of the period. At the end of the year/financial period, point B, the company distributes dividends to own shareholders which explains the fall FR. Let's analyze the financial situation during the time: ¾ the point 0, the beginning of the financial exercise, the financial balance is achieved because FR is equal to the NFR (point A); ¾ from 0 to B, FR grows faster than the NFR, due to increased capacity for self financing (on account of amortization and profit). The enterprise known, so a balanced growth because the line FR is always above the line NFR. The undertaking is therefore over, the enterprise is over financed. ¾ in point B, the company distributes dividends. This distribution amounts expressed in the right CD. It notes that right/line FR is situated below the right/line NFR. The enterprise is in the future in the financial imbalance. If the revolving fund will continue to grow faster than the CA and, therefore, faster than the NFR, the right y4 will cut then will exceed y2 right and the company will again be in balance. It notes, however, that to the end of period is not all profit distributed and a part is capitalized and then right FR static ascends from the G level to the level D. The maximum distribution considered in order to not ever be in imbalance is CF. Since as were distributed dividends, FR is insufficient, the company needs to increase the mass of permanent capital by issuing new shares or by borrowing on long term period. The solution is immediate hiring of treasury loans Ways of ensuring financial balance The first condition for ensuring a high efficiency in the use of funds and, implicitly, to achieve financial balance is their correct 144 Knowledge Based Organization 2008 International Conference sizing, in relation to the real needs of production and circulation. Over the necessary funds leads to the emergence of certain fixed assets and conditions for waste and spending un-economic resources also the underestimation may adversely affect the continuing health-circuit and payment ability of the company. It is, first, the proper sizing of production capacities and appealing to new investments only when, through better use of existing fixed assets, can not achieve production growth forecasted. Secondly, it is proper evaluation requirements assets, according to the acceleration of their rotation. A very important issue has, in this sense, correctly sizing costs, improving rules of consumption and reducing the period of restricted funds - in various stages of their rotation. For financial reasons should trigger action on the optimization of stocks for the production, the modernization of technological processes with a view to shortening and reducing manufacturing costs of obtaining timely delivery and rhythm, according to the obligations assumed, of finished products appropriate quality, timely collection of debts and honor the maturity of payments due. By triggering these actions shall, from the stage of assessing the needs of funds, an acceleration of their rotation and thereby, a high efficiency in their use. A second condition, at least same important for ensuring financial balance is the concern for operative lead of financial activity so that expenses fall within preset/settled limits and forecasted revenue to be collected on time. Because this requirement to be satisfied that the undertaking is necessary to act in the following directions: ensuring a reasonable correlation of the program to supply the production, streamlining relationships with suppliers and carriers so as to ensure a rhythmic supply and the conditions required by current consumption; ensure proper storage conditions for removing the cause of degradation of material values, the full program of production, reducing manufacturing cycle, continuous operation at full capacity and the equipment and facilities, provision of supplies rhythm, based on the agreed deadlines with the beneficiaries, the appropriate formalization of the process of deliveries, choice of instruments and forms of settlement to ensure timely collection of supplies, eliminating the causes of generating denials of payment.
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Enterprises seek to ensure a correspondence between the needs of financial resources on the one hand and the existing financial or possible resources, on the other. As the needs of financial resources, claimed in the normal course of business, are structured according to different categories of priority, is obvious that the financial equilibrium of the enterprise is acting as a structural balance that reflects a phase, by definition is therefore a static balance. Structural design of financial balance is precisely determined by the financial management structure of the enterprise, which includes items relating to business activity in relation to forming, increasing or decreasing funds, obtaining and distribution on legal destinations of financial results.
Reference: [1] Cristea, H, Heteş-Gavra, I., Heteş-Gavra R., Financial-accounting management of organization, Ph. Mirton, Timişoara, 2004. [2] Sichigea N., Popescu L., Berceanu D., Vişinescu S., Financial Managemet of the enterprise, - synthesis, practical applications, grills, Ph. Sitech, Craiova, 2004. [3] Berceanu, D., Financial policies of the company, Ph. Universitaria, Craiova, 2001. [4] Berceanu D., Financial decisions of the company, Ph. Universitaria, Craiova, 2002. [5] Cărunt, C., Căruntu, G., Tănăsoiu, G., Financial Management. Theory and applications, Ed. Academica Brâncuşi, Tg-Jiu, 2003.
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CONCEPTUAL APPROACHES CONCERNING THE MANAGEMENT OF INVESTMENT’S RISKS
Asst. Prof. Cibotariu Irina-Ştefana, PhD, Asst. Prof. Apetri Anişoara-Niculina, PhD,
”Ştefan cel Mare” University, Suceava, [email protected], [email protected]
Abstract The analysis of risks represents the main element on which the management of risks is based upon and implicitly the management of a system’s security or economic entity and consists on identifying, evaluating and making hierarchy over the risks. The analysis of risks serves upon underlying the decisions as concerns the activity of an organization and/or its security and is initiated by the owners of the organization or by the executive management. Simultaneously, this can be directed on different objectives or levels of “granularity” in accordance to the objectives aimed in the view of leading the underlying on certain important decisions, such as: the critical infrastructure, different interest, the developing projects, categories of values, each critical or significant “value”, types of attacks, different agents of threatening and different vulnerabilities.
Keywords: management of risk, investment’s risk, macroeconomic risk, volatility, financial market;
1. Introduction Investment planning is almost impossible without a thorough understanding of risk. The risk can be perceived, defined and handled in a multitude of ways. The investment risk can be defined as the chance of an investment's actual return to be different than expected, including the possibility of losing some or all of the original investment
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Other definition says that risk is a concept that denotes a potential negative impact to an asset or some characteristic of value that may arise from some present process or future event. Risk perception is an essential factor in every human decision making and also in investment decisions. In economics in general, and investments in particular, the standard assumption is that investors are rational. Rational investors prefer certainty to uncertainty, being risk averse. According to the preference of the investors to risk, these can be divided into three major categories: risk-averse, risk neutral and risk- loving. Investors deal with risk by choosing, implicitly or explicitly, the amount of risk they are willing to incur. The risk-loving investors choose to incur high levels of risk with the expectation of high levels of return. The averse-risk investors are unwilling to assume much risk, and they should not expect to earn large returns. Generally, as the level of risk rises, the rate of return should also rise, and vice versa. A way to handle the investment risk is to transfer it using the multitude of strategies, from purchasing an insured municipal bond to purchasing a put option on a stock which allows to sell the stock at a set price. Different investors have very different tolerances for risk, and their tolerance for risk changes during their lifetimes. Generally, the objectives being pursued may require a policy statement according to the specific planning horizons. In the case of an individual investor this could be a year or two in anticipation of a down payment on a home purchase or a lifetime if planning for retirement.
2. Types of investment risks W. F. Sharpe introduced in 1964 an incredible simply hypothesis in modern portfolio theory, that separates the total risk in general (market or systematic) risk and specific (issuer or nonsystematic) risk. Modern investment analysis categorizes the traditional sources of risk causing variability in returns, also into two general types: those that are pervasive in nature, such as market risk or interest rate risk, and those that are specific to a particular security issue, such as business or financial risk. By dividing the total risk into its two components, a general (market) component and a specific (issuer) component, the systematic and nonsystematic risk corresponds to these components. An investor can construct a diversified portfolio and eliminate part of 148 Knowledge Based Organization 2008 International Conference the total risk, the systematic risk. Systematic (market) risk represents the variability in a security's total returns that is directly associated with overall movements in the general market or economy [6]. Nonsystematic risk represents the variability in a security's total returns not related to overall market variability. The stock price changes due to the unique circumstances of a specific security, as opposed to the overall market. This risk can be virtually eliminated from a portfolio through diversification. The risks affecting investments were intensively analyzed by the economists along the last decades. Ghoshal , in a “classical” paper distinct four categories of risks associated to international investments [5]: macroeconomic risks (including regional level risk, country level risk, structural changes in economy, recession or war risk); ¾ policy risks (contains regulatory risk, law or tax risk, interest rate or exchange risk); ¾ competitive risks (industry, commercial or business risk); ¾ resource risks (limited resources risk). The category where the risks are included has no significant influence, while the risks are very various and vary from country to country and also from time to time. In 1999 Sullivan proposed [7] a division of investment risks in two categories: country risk and non- country risks. The first category refers to business, commercial risk, financial risk, market risk or currency risk. The last one includes political risk and other macroeconomic risks. Other economists as Dunning (1993) and later Eaker, Fabozzi and Grant (1996) [2] have emphasized the importance of currency risk in international investments and identified two other risk categories – political and economical risks. Lessard presents [3] the importance of the risks associated to international investments as concentrically circles starting from nucleus: 1. project/commercial risk; 2. industry level risk; 3. institutional regulatory risk; 4. country-level price risk; 5. country macroeconomic and political risk; 6. world market price risk. 149 Knowledge Based Organization 2008 International Conference
The greatest performances in investment risks classification in national and international framework were realized by The Economist Intelligence Unit that share the investments risks in three categories (environmental risks, process risks, informational risks) and nine sub- categories. I considered important to define the most common risk categories used in by different authors [1]. The Market Risk represents the variability in a security’s returns resulting from fluctuations in the aggregate market. All securities are exposed to market risk and some cases this risk is synonymously with systematic risk. The market risk includes the world market price risk, the country macroeconomic and political risk and the country level risk. Example of market risks includes: recessions, wars, structural changes in the economy, tax law changes, even changes in consumer preferences. The Interest Rate Risk is considered the variability in a security’s value, especially bonds, resulting from movements of the interest rates. Such changes generally affect securities inversely; security prices move inversely to interest rates. Interest rate risk affects bonds more directly than common stocks and as interest rates change, bond prices change in the opposite direction. Purchasing Power Risk. A factor affecting all securities is purchasing power risk also known as inflation risk. The possibility that the value of assets or income to decrease as inflation shrinks the purchasing power of a currency is known as purchasing power risk. This risk is related to interest rate risk, because interest rates generally rise as inflation increases, because lenders demand additional inflation premiums to compensate for the loss of purchasing power. Regulatory or legal Risk. The risk of a regulatory change that could adversely affect the stature of an investment is represented by regulation risk. Some investments can be relatively attractive to other investments because of certain regulations or tax laws that give them some advantage. Usually, the municipal bonds pay the interest that is exempt from other taxation. As a result of that special tax exemption, municipals can price bonds to yield a lower interest rate since the net after-tax yield may still make them attractive to investors. The changes in tax law can dramatically influence the attractiveness of
150 Knowledge Based Organization 2008 International Conference many types of investments, affecting the existing partnerships that relied upon special tax consideration. Industry Risk is the risk associated with the specific conditions of a particular industry or domain. Business or commercial risk represents the risk associated with the unique circumstances of a particular company, as they might affect the price of that company's securities. Reinvestment Risk. It is important to understand that yield to maturity (YTM) is a promised yield, because investors earn the indicated yield only if the bond is held to maturity and the coupons are reinvested at the calculated YTM. This interest-on-interest concept significantly affects the potential total return. The exact impact is a function of coupon and time to maturity, with reinvestment becoming more important as either coupon or time to maturity, or both, rises. Exchange Rate Risk All investors who invest internationally in today's increasingly global investment arena face the prospect of uncertainty in the returns after they convert the foreign gains back to their own currency. Unlike the past when most investors ignored international investing alternatives, investors today must recognize and understand exchange rate risk, which can be defined as the variability in returns on securities caused by currency fluctuations. Exchange rate risk is sometimes called currency risk. Country Risk, also referred to as political risk that represents an important risk for investors today. With more investors investing internationally, both directly and indirectly, the political, and therefore economic, stability and viability of a country's economy represent important variables to take into consideration. Liquidity risk is the risk associated with the particular secondary market in which a security trades and arises from the difficulty of selling an asset. Generally, an investment that can be bought or sold quickly and without significant costs is considered liquid. The more uncertainty about the time element and the costs a market has, the greater the liquidity risk is.
3. Measurement of Risk Over the years, the economists have tried to measure the risks and managed to make considerable progresses in some aspects. Some of 151 Knowledge Based Organization 2008 International Conference the risks are considered qualitative variables influenced by o variety of factors that make the measurement very difficult, if not impossible. Quantifying the risk of an asset or portfolio has numbered many successes and is considered one a remarkable progress in investment risks measurement. Volatility may be described [4] as the range of movement or price fluctuation from the expected level of return. Because wide price swings create more uncertainty of an eventual outcome, increased volatility can be equated with increased risk. Being able to measure and determine the past volatility of a security is important in that it provides some insight into the measure of risk of that security as an investment. In order to calculate the total risk associated with the expected return, the variance or standard deviation is used. This is a measure of the spread or dispersion in the probability distribution; that is, a measurement of the dispersion of a random variable around its mean. The larger this dispersion is, the larger the variance or standard deviation is. Since variance, volatility and risk can in this context be used synonymously, the larger the standard deviation is, the uncertainty of the outcome increases. Calculating a standard deviation using probability distributions involves making subjective estimates of the probabilities and the likely returns. However, it cannot be avoid such estimates because future returns are uncertain. The prices of securities are based on investors’ expectations about the future. The relevant standard deviation in this situation is the ex ante standard deviation and not the ex post based on realized returns. Although standard deviations based on realized returns are often used as proxies for ex ante standard deviations, investors should be careful to remember that the past cannot always be extrapolated into the future without modifications. Ex post standard deviations may be convenient, but they are subject to errors. One important point about the estimation of standard deviation is the distinction between individual securities and portfolios. Standard deviations for well- diversified portfolios are reasonably steady across time, and therefore historical calculations may be fairly reliable in projecting the future. Moving from well- diversified portfolios to individual securities, however, makes historical calculations much less reliable. Fortunately, the number one rule of portfolio management is to diversify and hold 152 Knowledge Based Organization 2008 International Conference a portfolio of securities, and the standard deviations of well- diversified portfolios may be more stable. Something very important to remember about standard deviation is that it is a measure of the total risk of an asset or a portfolio, including therefore both systematic and unsystematic risk. It captures the total variability in the asset’s or portfolio’s return, whatever the sources of that variability. In summary, the standard deviation of return measures the total risk of one security or the total risk of a portfolio of securities. The historical standard deviation can be calculated for individual securities or portfolios of securities using total returns for some specified period of time. This ex post value is useful in evaluating the total risk for a particular historical period and in estimating the total risk that is expected to prevail over some future period. This way, the standard deviation, combined with the normal distribution, can provide some useful information about the dispersion or variation in returns.
4. Conclusions Considered from a summary perspective, the management if risk means to stop the factors that perform over an object so that this object has to remain intact, and more, to be developed into a constructive way. The central element is represented by what is aimed to be protected, of preventing and not of remediation. In the view of elaborating the strategy for a manager to an economic entity, the starting point becomes essential on its determination. The less known element as concerns the risk management is represented just by the risk associated to this process. Indeed, the management of risks assumes its own risks and surprisingly, not accepting the provocation of some of them, being materialized by not assuming of those represents one of these risks. Nowadays, the financial markets have become more and more sophisticated as concerns the risk-management practices. The security instruments or its derivates will contribute on facilitating this process, but they generated also own risks.
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References [1] Blake, C., E. Elton, and M. Gruber , The Performance of Bond Mutual Funds, Journal of Business, Vol.66 (3), pp.371-403, 1993. [2] Eaker, M., Fabozzi, F., Grant, D., International Corporate Finance, The Dryden Press, Harcourt Brace College Publishers, New York, pp.341 1996. [3] Lessard, D., Incorporating country risk in the valuation of offshore projects, Journal of Applied Corporate Finance, Fall Issue, pp.273, 1996. [4] Horobet, A., Managementul riscului in investitiile internationale, Editura ALL Beck, Bucuresti, pp.189-190, 2005. [5] Ghoshal, S., Global Strategy: An organizing framework, Strategic Management Journal, No. 8, pp.45, 1987. [6] Sharpe, W. F., Capital Asset prices: a theory of market equilibrium under conditions of the risk, The journal of Finance, Vol. 11, No. 3, 1964. [7] Sullivan, J., Exploring International Business Environments, Pearson Custom Publishing, Massachusetts, pp.211, 1999.
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POSSIBILITIES OF AVOIDING THE BANKRUPTCY BY ADOPTING THE CHANGING STRATEGIES
Asst. Prof. Cibotariu Irina-Ştefana, PhD, Asst. Prof Mihalciuc Camelia-Cătălina, PhD,
”Ştefan cel Mare” University, Suceava, [email protected], [email protected]
Abstract Using the changing strategies represents a practice often met, both in countries with economy on functional market and those being in transition. Adopting these strategies is imposed both in crisis situations and also in those being favorable, when the enterprise is adapted to exigencies of business environment, but also wishing to consolidate the position, thus essentially changing the financing manner. Mostly, the changing strategies are regarded as avoiding solutions for affecting the financial situation and implicitly, of bankruptcy. With all these advantages, within the mechanism of changing, both elements which determine the changing act, as well as elements that stop it. From the first category, the following take part: changing the conditions of work, changing the structure of work force; these elements offer tensions for changing. At their turn, the elements that stop the changing and form the resistance to changing is: the old mentalities, the fear of new, the fear of failure, the reduced level of professionalism and the mental blocking.
Keywords: bankruptcy, state of failure, financial decision, insolvency and insolvability;
1. Introduction For establishing a financial decision in case of bankruptcy, the financial service proceeds on determining the most of financial information.
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At the beginning, by the legislation research as concerns the companies, the bankruptcy law and other judicial provisions, the methodological information is established. Upon their basis, the information as regards the financial expenses and financial incomes are determined. The information as concerns the financial expenses refers to expenditure made in the view of process managing of bankruptcy and to eventual organizations and restructuring, being thus determined by the procedure of quotation. The payment obligations refer to amounts payment towards creditors and their proportion, the payment of wages for the staff and to the level foreseen by the law of bankruptcy, the payment of taxes remained towards the central and local budget. The information as concerns the financial incomes are determine by the market value of the asset sold by public auction by the bankruptcy process managing. The financial decision as concerns the bankruptcy makes part of the documentation that attaches the company’s bankruptcy, being the last financial distribution in the name of economic agent in discussion. The bankruptcy is a judicial procedure in the view of reorganizing or liquidation of a company, when reorganizing or liquidation is organized by special courts. The bankruptcy can be of two types: • voluntary, when the bankrupted company presents to judicial instance a request and no order of supervising exists, and the manager of real patrimony/syndics is directly named; • involuntary, when the company’s creditors presents to judicial instance a request and prove that the debtor do not respect the duties on date of payment. In this case, the instance institutes the order of supervision over the debtor and names the patrimony managers. An enterprise being in difficulty can apply the following strategies of changing, with great impact over the payment capacity of it and of its evolution on market [2]: • strategies of changing in conditions of temporary inadaptability; • strategies of transforming and reorientation; • strategies of recovering or of making efficient.
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The first type of strategies is adopted by those enterprises being temporarily in an unfavorable situation thanks to certain unfavorable conjuncture phenomenon, but which can be surpass in the future, by adopting some objectives and concrete measures of activity. Adopting such a strategy is based upon issuing an adequate diagnosis, which is able to support certain vanguardist manifestations, of launching in business that can reward the courage by adopting certain decisions in risk and uncertainty conditions thus assuring the economic recovery [1]. In our country, an enterprise, which reached a strategy of temporary inadaptability and succeed to surpass the status of difficulty, is SC General Fluid S.A (stock company). The company adopted a vanguardist attitude, by launching on the market of certain measuring systems of thermal energy for the industrial, public and home consumers, completely new for Romania [4]. At their turn, the strategies of transforming and reorientation can be adopted by those enterprises which achieve in present the adequate economic performances and are well adapted to existing economic context. But, upon basis of diagnosis strategically done, the enterprise observes that it should activate in the future to an environment totally different from that existing in present, under all views, reason for which it will perform to transformations to business organizing forms, of the property’s structure, of the technical potential, strategies of supplying and sale, etc. These modifications open the access to new financing resources and implicitly towards new possibilities of business, able to help it to apply a reorientation strategy, by reaching to other activity sectors, more attractive under the economic point of view; the strategies or reorientation ca be applied and without making other types of business, and the enterprise owning material, financial and human resources, necessary to diversifying the activity. The strategy of reorientation reduces the risk of business, because by means of supplying the products, papers and services different, the enterprise easily adapts to conjuncture evolutions. A strategy of transforming was applied by ROMTELECOM, which on own account become, by privatizing a trading company, with objectives and activities specific to this type of companies, thus 157 Knowledge Based Organization 2008 International Conference improving the financial power. A reorientation strategy was adopted by the Ana Industries and Ana Co. companies group, starting from the distribution and retail selling of electronic and domestic appliance products, thus extending the activity within hotels’ industry and other branches [4]. Finally, the recovering or making efficient strategies can be adopted when the enterprise achieves weak or unfavorable results, thus recording loss or it is not well adapted to the existing economic context, being absolutely necessary for the enterprises being on bankruptcy start; it needs a high spirit of responsibility form the managers, the future of enterprise having to be taken into consideration. Recovering is not possible without restructuring operations, which have the part of reducing the enterprise viability. Such type of strategy was applied to SC Sidex Galaţi SA (the present Mittal Steel Galaţi), which after privatizing of 2001, performed on reducing the huge daily loss and of achieving profit [4] . Within the process, two strategic directions which have to be thought are aimed, meaning [3]: • the strategy of business activity, where what, how and how much is supervised; • financial strategy, where how much is cached and what is the profit is taken into consideration. Therefore, the financial restructure is observed in Table no. 1:
Table1: Strategy of enterprise restructuring Strategy of changing by business Strategy of changing by financial restructuring restructuring Organizational and dimensional Liquidities management restructuring Issuing of sector’s and territorial strategies on short and mean Reducing of duties term Segmenting of business Adequate using of economic – financial lever
Successfully applying of changing strategies needs the following steps respecting [4]:
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1. understanding the need of adopting the strategy and changing the mentality frame of enterprise. The mental frame represents a particular form of thinking which characterizes individuals that lived and worked in the same environment for long time, thus representing the result of a culture and specific structure. He has to become receptive to changing and to impose the steps necessary to changing; 2. defining the objective of changing strategy, depending the nature and structure wished to enterprise’s level; 3. choosing the type of strategy, which is adapted the best to enterprise’s problems; 4. execution of strategy and evaluating the achieved results; By all these, liquidation consumes a lot of time, is expensive and has as effect the enterprise’s closing. Putting an enterprise in liquidation status supposes accomplishing the following activities: • managing the bankruptcy procedures by the experts within judicial and financial field; • evaluating and selling the company’s assets; • establishing the priority order and of customers’ satisfaction proportion. Within any reorganization of financial duties by the Law of bankruptcy, the rule of absolute priority is applied, in accordance to which the financial duties which come to creditors with greater priority have to be totally closed, before any payment to creditors/owners with less priority. If the reorganization is performed outside this law, the priority rule used will depend on the power of negotiating of duties and stocks owners.
References [1] Aglietta, M., Macroeconomie financiară, Editura Coresi SA, Bucharest, pp.210-212, 2002. [2] Halpern, P., Finanţe manageriale, Editura Economică, Bucureşti,pp. 162, 1998. [3] Lepage, H., Wajsman, P., Vingt économistes face a la crise, Édition Odile Jacob, Paris, pp.130, 1999.
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[4] Onofrei, M., Finanţele întreprinderii, Editura Economică, Bucharest, pp.178-185, 2004. [5] Pasca, V., Bancruta frauduloasă, Editura Lumina Lex, Bucharest, pp.111, 2005.
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ASPECTS REGARDING THE IMPORTANCE OF HAVING A FINANCIAL AUDITING INSIDE COMPANIES
Asst.Prof. Ciuhureanu Alina Teodora, PhD, Prof. Balteş Nicolae, PhD
Romanian-German University, of Sibiu, [email protected] “Lucian Blaga” University of Sibiu, [email protected]
Abstract The financial statements represent a basic element of the management of the financial-accounting activity, because they are the fundamental means of communicating the information to the users. In a time when the accounts’ consolidation, the financial-accounting ethical practices and not only, are becoming more important, the organizations will have to go towards making the internal control, the risk management, and the obeying the corporate government principles more efficient. Under this context, the organization should strengthen or create the financial auditing activity. Doing a financial audit supposes knowing the conceptual accounting framework at a national and international level, knowing the principles, the evaluation norms and rules, the accounting technical instruments and the International Auditing Standards.
Keywords: auditing, management, financial, accounting
1. Introduction Nowadays, the competitive economy generates, at an international level, two extremely different tendencies: on one hand, hiding all information that could be used by the competition to the disadvantage of the company, on the other hand, the demand to provide relevant and credible information from the same entity [1]. From this perspective, the managing objectives of the financial statements consists of the supply of an exact view [2]: (“true and fair view”) over the financial position, the performance, own capital modification and 161 Knowledge Based Organization 2008 International Conference the company’s treasury flows for the respective period, the useful information for evaluating the strategic plans, the company’s and its managers’ accomplishments. In order for the financial-accounting activity to be made under performance conditions, by the true and fair view, both a training of the involved professionals, which should offer those information which reveal the reality, and a training and information of the users are needed, in order to perceive correctly the signals, since the accounting “artists” do not live isolated, but they express themselves on a market where the demand and offer for financial-accounting information are being compared [4]. In the specialty literature [3], [4], [5], [6], we have a detailed definition of the “auditing” notion, as it follows: ¾ a professional analysis of certain economic, financial, accounting and fiscal information with the purpose of making a responsible and independent opinion, by making reference to a quality criterion or standard; ¾ the process developed by legally qualified natural or legal persons, known as auditors, with information related to a specific entity are being analyzed and evaluated, using specific techniques and procedures, with the purpose of getting proofs, called auditing evidences, upon which auditors issue a document, called an auditing report, a responsible and independent opinion, by resorting to criteria which result from the legal settlements or from the good practice, unanimously accepted in the field where the audited entity has its activity; ¾ an objective examination of an element, with the purpose of issuing an opinion or of obtaining a conclusion over the audit’s purpose; ¾ a research, with the purpose of generating a motivated and independent judgment, with reference to the evaluating rules, in order to make an estimation of the efficiency of the company’s systems or procedures; ¾ a credibility contribution to the economic information published by the economic entity regarding the financial statements;
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¾ a critical review for evaluating some determined financial statements; ¾ an evaluation made by s competent and independent professional, in order to express a motivated opinion over the validity and proper usage of internal procedures established by the company’s managers, over the financial statements and the obtained results; ¾ the examination done by an independent and competent specialist f the fairness of the financial and accounting representations; they guarantee the probability and credibility of the company’s economic transactions; ¾ an independent control whose result is expressed in an report for the statutory meeting or the general manager.
2. The importance of the financial auditing The introduction of International Auditing Standards into the Romanian financial-accounting system has represented a real progress. Carrying into practice the financial auditing standards has offered the auditors an important working instrument, which helped to the standardization in shape and content of the auditing obligations, to a better description of the auditor’s responsibilities and the audited companies’ management, to the establishment of the basic guide marks of the auditors’ ethical ad professional policy, to the establishment of basic principles, essential procedures an practical instructions used in an auditing. By using the international professional standards, the auditors in Romania began the integration process into the big family of international auditors. The process is also encouraged by using the International Accounting Standards as compulsory rules for the book- keeping in the large and medium-size companies. Carrying into practice on a large scale the International Accounting Standards offers the auditor the proper environment for doing his job, but at the same time it puts a great pressure on the correct assimilation and usage of the professional standards to fulfill his order. The auditor must be very well acquainted to the accounting standards and, at the same time, he must master the research instruments of the financial statements imposed by the auditing standards. 163 Knowledge Based Organization 2008 International Conference
The auditing objectives are oriented towards the certification of the internal control, towards obeying the accounting conceptual environment and the auditing norms. Under this perspective, the financial auditing comes between producers and users of the accounting information, through high-class professionals who take responsibility for certifying that the financial statements are made, under all significant aspects, according to the National and International Accounting Standards. The necessity of having a financial auditing provided by law in all companies, the independent administrations, the public institutions, the banks, the investment funds etc. would have presented bankruptcy and people’s financial resources’ loss through a correct, real and honest notification of all participants to the economic and social life. The reasonable insurance by the auditors that the financial statements do not contain significant errors depends on gathering the auditing evidences, on the procedures which correspond to the Auditing Standards. The financial auditing is an economic activity specific t the market economy, based on competition and the promotion of each market player’s interests. The auditing companies and the individual auditors would not be interested in doing this activity unless it was producer of added value. Because of this, there is the risk that the auditor’s personal interests affect the public interest. This determined the existence of legal regulations, besides the ethical and professional code, which regulate the auditors’ activity. The Chamber of financial auditors in Romania is the organization with professional character which controls how its members obey the behaviour code, eliminating those who do not respect its stipulations. The auditor has to check if, when doing the financial statements, it had been had in view the continuity principle of the entity’s activity. The beneficiaries are interested in knowing the auditor’s opinion regarding the audited financial practice. The auditor analyzes the evolution of the indexes’ level which is considered important from the financial statements and on this basis they estimate how they will evolve in the future. This information is being correlated, their general evolution tendency is being identified and on this basis the company’s ability to continue its activity is being deduced. The auditor is asked to 164 Knowledge Based Organization 2008 International Conference make an economic analysis of the indexes from the auditing period and based on them to build a small pattern related to the future economic evolution of the company. The accountants’ and auditors’ experience, materialized in the International Auditing Standards, offers procedures for doing the auditing according to these rules. The auditing standards intend to discover the important faults in the financial statements, by offering technical instruments for that.
3. Arguments regarding the financial auditing The diversity of the economic and financial activities, the capita markets’ development, the banking institutions development etc. led to the complexity increase of the accounting situations which can attract errors in processing the information, their interpretation and evolution with negative consequences for the accounting information users’ decisions. The susceptibility of the accounting information reality in the annual financial statements can also be given b the moral and professional qualities of the information procedures. In their turn, the accounting information users “the investors, the employees, the creditors, the suppliers and other creditors, the clients, the governments and the administrations, the public”, under the influence of certain different economic, cultural, political and legal environments, have different interests over the need for information. The conflict of interests between users and producers of accounting information should be softened by the activity of professional elite in the field, represented by financial auditors. The auditors’ activity purpose is to re-establish a reasonable trust between producers and users of the accounting information. Thus, the auditors contribute to the interests’ protection of the different types of beneficiaries of the accounting information, when they take economic decisions. The financial auditing purpose is to get a grounded opinion regarding the financial statements under all significant aspects, according to the financial reporting regulations in force. In order to insure a competent and independent opinion over the fair, clear and complete view of the asset elements, of the liabilities 165 Knowledge Based Organization 2008 International Conference and own capitals, of the financial statements and the companies’ results, the auditing takes into consideration some criteria and objectives which govern an auditing of the financial statements: the accounts’ complete and integrity criteria; the criterion of correct registering into the accountancy and of the correct presentation with the annual accounts. The auditing purposes have in view: the asst elements, the liabilities and own capitals, the result of the exercise, the company’ balance and financial statements. The auditor’s validation of the integrity of the asset elements, liabilities and own capitals takes into consideration: ¾ making the correct and up to date book-keeping; ¾ making the stock-keeping of the asset elements, liabilities and own capitals, the correct development of its results and including the accounting balance; ¾ the correct absorption into the checking balance of the information into the synthetic accounts and their concordance with the analytical accounts; ¾ the correct execution of all operations related to the own capitals’ registration and modification; ¾ making the accounting balance based on the checking balance after inventory. The financial auditing purpose is to get a grounded opinion regarding the financial statements under all significant aspects, according to the financial report regulations in force. The auditor is responsible for establishing and expressing an opinion about the financial statements. The financial statements’ auditing does not relieve the company’s management from these responsibilities.
4. Ethics in the financial-accounting auditing The code regarding the ethical and professional behaviour states that the objectives of the financial auditor profession are represented by the activities displayed at the highest professional standards “with the purpose of fulfilling the demands of the public interest” “through the highest level of performance”. To accomplish these general objectives and in order for the auditing activity to be appreciated and 166 Knowledge Based Organization 2008 International Conference to enjoy the society’s attention, auditors and the result of their work should fulfill four basic rules [9]: ¾ the credibility of the information for taking decisions; the clients expect trust-worthy information from the auditor, information that would certify the existing real situation in the analyzed system; ¾ professionalism; the beneficiaries of the financial auditing services want the auditor to be an experienced person of the accountancy profession, of the financial field, so that he is able to characterize the analyzed system the most fairly possible; ¾ the quality of the services; the auditor’s services are qualitative if they satisfy the clients’ expectations, and the employed research methodology leads to the gathering of clear information; ¾ the users’ trust in the services offered by the professional financial auditors. However, the basic principle for the auditors is “independence”, being the “touch stone” of an auditor’s profession. Usually, the situations which involve taking certain ethical decisions are those from the “grey” area, where it does not exist a pre-defined way to take action. Without an unquestionable professional independence, the auditor’s opinion is nothing but suspect. Theoretically, the factors which allow the establishment of the independence level are: the auditor’s integrity and objectivity. To conclude, the financial auditing comes between the producers and users of the accounting information, through high-class professionals who take responsibility for certifying that the financial statements are registered, under all significant aspects, according to the National and International Accounting Standards.
References [1] Toma, Constantin, Imaginea fidelă în contabilitate, Revista “Contabilitatea, expertiza şi auditul afacerilor”, pp. 11, nr. 4/2002. [2] Horomnea, Emil; Pahone, Carmen, Imaginea fidelă, criteriu de performanţă al contabilităţii, Revista “Finanţe publice, contabilitate, pp. 48, nr. 3/2002.
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[3] Legea contabilităţii nr. 82/1991, republicată, cu modific[rile şi completările ulterioare, M. Of nr. 48/14.01.2005. [4] Filip, Andrei, Imaginea fidelă: câinele de pază a diferitelor categorii de utilizatori?, Revista „Contabilitatea, expertiza şi auditul afacerilor”, pp. 37.nr. 1/2002. [5] Boulescu, Mircea; Ghiţă, Marcel; Mareş, Valerică – Controlul fiscal şi auditul financiar-fiscal, Publishing House C.E.C.C.A.R., Bucureşti, pp. 320-321, 2003, [6] Tabără, Neculai, Cadrul conceptual al auditului contabil-financiar, Revista “Finanţe publice, contabilitate”, p. 6, nr. 3/2002. [7] Ghiţă, Marcel; Mareş, Valerică, Auditul performanţei finanţelor publice, Publishing House C.E.C.C.A.R, Bucureşti, pp. 25-26, 2002. [8] Vilaia, Dan; Scarlat, Ion; Mihăilescu, Ion, Expertiză contabilă şi audit financiar, Publishing House Independenţa Economică, Piteşti, pp. 89, 2000. [9] Codul privind conduita etică şi profesională în domeniul auditului financiar 2000, Camera Auditorilor din România, Editura Economică, p.504, 2000.
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PREDICTABLE CHANGES IN THE 21ST CENTURY ORGANIZATION AND IMPLICATIONS OVER THE FINANCIAL-ACCOUNTING ACTIVITY
Asst.Prof. Ciuhureanu Alina Teodora, PhD, Prof. Balteş Nicolae, PhD
Romanian-German University, of Sibiu, [email protected] “Lucian Blaga” University, of Sibiu, [email protected]
Abstract One of the main objectives that company management has to take view of is the one having a financial-accounting activity led by professionals who should contribute to the ultimate goal. But what are the implications that the organization of the future has over the financial-accounting activity? First, we consider that change should begin from culture. It is impossible to have an efficient management if the mentality and values of the people are obsolete and reject novelty. In the organization of the future, the financial-accounting activity must be oriented towards the centers of responsibility. Another implication is connected to intelligence, and implicitly to human capital. But the human intelligence must be correlated with artificial intelligence. Thus, technology is not something to admire, it must also be implemented and used. The financial-accounting activity must allow the organization to know the economic phenomena, the mechanism of their formation and manifestation, by analyzing them. The ability to forecast is behind the level of the firm’s performance as well behind the possibility to continue its activity.
Keywords: changes, management, financial, accounting
Nobody can know for sure what the future will bring. Nobody can know what the world will look like the next century. Nobody will be able to foresee the economic entity in the near future. We can not ask
169 Knowledge Based Organization 2008 International Conference for the environmental mutations, events, actions and configurations to be projected in the future. However, we can identify certain possibilities with the role of deciding what has to be done today in order to live better tomorrow. The most important changes of the 21st century’s organization, in its attempt to adapt to the business environmental characteristics are emphasized as it follows: the increase of the dimensional, structural and functional flexibility; the introduction of a proper dimension for competition; the adjustment of standardization to flexibility; the procedures’ mechanization inside the company; the emphasis of the intellectual technologies role for the organization’s management and functioning; new labour forms and activities specific to the informational society; the usage of the creative potential; the improvement of the managing abilities to anticipate the environmental changes; the increase in concern for the resources’ superior economy and development; the management’s growing professionalism; the intensification of cooperation between organizations; real-time labour; generation changes; the culture. The 21st century’s organization will be based on the flexibility principle. It holds responsible to act, to adapt and to change according to its environmental changes. The basic condition of the company’s flexibility increase with the purpose of adjusting it to the estimated changes, is the exact responsibility of each decision center, regarding the performances that must be accomplished and the way the destined resources are being used, but especially in the future, the companies will no longer be oriented towards the product, but towards the client. Therefore, the satisfaction of the client’s demands will be the premise for the organization’s value maximization. But, in order for a client to be satisfied, the company of the future will have to know how to get information, to analyze, to improve, to decide which activity, department, product goes further and what must be stopped. But what are the implications of the 21st century’s organization over the financial-accounting activity? First, we consider that change should begin from culture. It is impossible to have an efficient management if the mentality and values of the people are obsolete and reject novelty. 170 Knowledge Based Organization 2008 International Conference
In the organization of the future, the financial-accounting activity must be oriented towards the centers of responsibility, as a place for establishing the difference between incomes and expenses, with a control over the resources and products resulted from the process. “It does not matter how much money you have, - the important thing is to get the anticipated performance” – this could be the motto of such a center, and implicitly of the responsible managers. Another implication of the organization of the future over the financial-accounting activity is related to intelligence, and implicitly to human capital. Managing to elaborate some useful financial- accounting information, which respect the imposed quality features and which lead to the strategic decisions’ grounding, imposes the involvement, the development and the maintenance of a diversified group, represented by the best and most brilliant existing human talents. But the human intelligence must be correlated with artificial intelligence. Thus, technology is not something to admire, it must also be implemented and used. The financial-accounting activity must allow the organization to know the economic phenomena, the mechanism of their formation and manifestation, by analyzing them. The ability to forecast is behind the level of the firm’s performance as well as behind the possibility to continue its activity. Analysis is essential to forecast future events and consequences over the organization. The economic analysis is very important, as a research activity of the activities or phenomena, from the economic point of view. Any organization’s management uses the economic analysis as an essential component which helps to the surveillance and evaluation of its function as a system and which also controls the movement of the coordinates of the economic efficiency and the insurance of competitive performances [1], [2]. We do not exclude the importance of the financial diagnosis and also the global one, respectively obtaining an overall image over the financial health and the company’s structural balance. The financial-accounting activity of the modern organization must have in view, through the result of the employed ways and of the used measures, the reestablishment of the financial balances and, generally, the company’s financial health. Therefore, an important characteristic of a successful financial-accounting activity consists of a financial 171 Knowledge Based Organization 2008 International Conference reorganization so that the company can have permanent capitals, in the needed structure and the wanted volume, and to act towards insuring a favourable evolution of the circulating assets and the circulating assets’ needs. To insure a financial health, five basic rules must be considered [3]: reestablishing the margins, by adopting some exceptional measures; finding the capitals, by security sale or guarantee; reducing the circulating assets’ needs, the organization being able to act for diminishing stocks between 15 and 30% from the total, diminishing debentures by revising the checking terms and improving conditions regarding the credits-suppliers; renegotiating the liabilities, by trying to reestablish trust and credibility; canceling the deficit activities. The financial manager will try to accomplish the financial balance, the financial profitability level, the activity’s improvement and the necessary flexibility to do this. A suitable financial balance implies the insurance of the circulating assets’ needs, a good treasury level and a rational liability, same as a proper financial profitability should be reflected in a liability rate and an economic profitability which could maintain the competition and performance level [4], [5]. A competitive financial-accounting activity should “attract” the management’s strategy and performance – no matter the chosen philosophy – and even to push it further, to help integrate, distribute and analyze the financial information into the organization in order to take correct decisions and to act before the rivals on the market, to avoid the simplistic or dogmatic treatment, by giving firms the opportunity to discover where they stand now, where they should be leading towards and, most importantly, what resources they need to get there. The financial-accounting activity of the organization of the future should be flexible enough to adapt itself to the managing style, using a technology which helps the organization act more rapidly, more intelligently and easier. Moreover, it offers the possibility to plan the “way” to achieve the proposed goals, crossing a well-established direction and exploiting the new opportunities that come along. At the same time, it offers an image over the compatibilities between the internal processes inside the organization, the existing financial source, their cost and how they 172 Knowledge Based Organization 2008 International Conference have been distributed, by sending strategic indications regarding the avoidance of unpleasant events that might appear. The most decisive issue in the financial-accounting activity is the managing team’s level of commitment in making the necessary changes [6]. For this matter, we mention some essential features of the managing team, of the company’s of the future employees [7], as well: to work very well; visibility increase; mobility; finding a new mentor. The financial-accounting activity is not always efficient. We can also talk about inefficiency. Thus, when a company is controlled and dominated by people who seek their own interest or who neither promote a managing style which leads to weak performances, the financial-accounting activity, directly subordinated to the general management, will nor be able to “change” the situation, since it is inefficient itself. However, most of the financial-accounting activity’s inefficiency causes are determined by this situation, mentioning: ignoring the problems related to cost or to treasury flows management; foreseeing some unrealistic performances as far as estimated profit or profitability is concerned, by leveraged buyout a company, by merging, by assimilation, respectively by doing some strategic financial errors; underestimating the capital needs, due to an inadequate planning; incorrect planning of a project’s accomplishment period; elaborating wrong financial statements; inadequate financial control; personnel’s training and qualification. Conceived as a social practice, the financial-accounting activity finds itself in the situation of treating its product as a compromise between social protagonists’ expectations and exigencies, between the demand and offer for accounting information. It will have to reject old beliefs, to find an adjustment between the demands imposed by legislation and the ones imposed by the general management, to focus on centers of performance in order to determine accurately the actual profitability and to foresee the future one.
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References [1] Russu, Corneliu, Mnagement strategic, Publishing House ALL BECK, Bucureşti, pp. 365-379, 1999. [2] Ţugui, Iuliana; Ţugui Alexandru, Responsabilităţi ale profesiei contabile în economia digitală. Profesia contabilă la răspântie?, Vol. “Congresul profesiei contabile din România. Armonizare sau Convergenţă în Standardele Internaţionale de Contabiliate?; Bucureşti, 3-4 september 2004”, Publishing House C.E.C.C.A.R., Bucureşti, pp. 866-868, 2004. [3] Mărgulescu, Dumitru, Analiza economico-financiară, Publishing House Fundaţiei “România de Mâine”, Bucureşti, pp. 21, 1999. [4] Dragotă, Vistor; Obreja, Laura; Coibanu, Anamaria; Dragotă, Mihaela Management financiar, vol. II: Politici financiare de întreprindere, Publishing House Economică, Bucureşti, pp. 119, 2003. [5] Nicolescu, Ovidiu; Verboncu, Ion – Managementul pe baza centrelor de profit: ghid practic pentru firmele româneşti, Publishing House Tribuna economică, Bucureşti, pp. 78-93, 1998. [6] Faulkner, David; Bowman, Cliff, Elemente de strategie concurenţială, traducere, Publishing House Teora, Bucureşti, pp. 105, 2000. [7] Lewis, S. Pamela; Goodman, H. Stephen; Fandt, M. Patricia, Challenges in the 21st Century, South-Western College Publishing, Cincinnati, , pp. 648, 1995.
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MARKET ENTRY STRATEGIES FOR EMERGENT ECONOMIES
Asst. Prof. Gheorghiu Anda, PhD, Prof. Gheorghiu Anca, PhD
’’Hyperion’’ University, Bucharest
Abstract The paper reveals the main groups of risks related to the firms getting into the emergent markets and the strategies used by them in order to avoid these risks or, at least, to diminish their impact. For a better understanding of the issue, the example of the Austrian group OMV entering the Romanian market is presented, with a focus on the acquisition of Petrom company in 2004 and the consequences of this strategy.
Keywords:risk, market entry, investment, rating agencies, OMV- Petrom
The firm internationalization is mainly accomplished in a gradual manner, by achieving several stages which define as many types of firms with international activity and also express the specific motivations for participating at the global market. There are four stages of internationalization: the exporter, the international firm, multinational firm and the transnational firm. Each stage corresponds to the similar four phases of the internationalization: the initial internationalization, production cooperation/local implementation, multi-nationalization and the globalization. The motives for internationalization may be reactive motives and proactive motives. The reactive motives are defined as response motives given by the firms to the pressures that come from the business environment, such as: the sells diminishing on the home market, the
175 Knowledge Based Organization 2008 International Conference overproduction, the competitors predictable reactions, the client proximity, the market potential in conformity with the number of the population and with the consumers buying potential. The proactive motives are given by the active involvement of the firm in the international businesses in order to take certain comparative, strategic and competitive advantages, such as: the admittance to the resources, the strategic competitive advantage, the development of the communication and the informatics technologies networks, the market diversifying, the products diversifying, the exploitation of the different economic growth rates. Getting into a new market is, of course, a difficult process, because of the numerous barriers of the internationalization, all being related to the commercial field, to the competitive filed, to the costs resulted from the changing of the suppliers and the products, and to the government policy. There could also be technical barriers, or barriers created by the geographical distance, by the business infrastructure, by the local customs, by the prohibitions, by the customs restrictions, by the specific requests related to the capital. Other aspects that could make difficult the process of getting into a foreign market are the language and the culture, the legislative instability or the lack of the laws for these sensitive domains, or the corruption phenomenon. In order to select the market most suitable for the firm objectives, there could be used four stages: 1. the macro-selection, which has the purpose of evaluating the general potential of all the markets and of eliminating those that are too risky or those that give no opportunities; 2. the estimating of the potential markets by using of some variable that reflects the market size and the degree of the product acceptance; 3. the estimating of the probable sells, that has the aim of profits and potential turnovers appreciation on the basis of the market permeability evaluations, of the clients evaluations and of the existent and potential competitors.; 4. the distinguishing of the target markets for the setting the markets most interesting for the firm in a close period of time or immediately, the markets with a huge potential of absorption and 176 Knowledge Based Organization 2008 International Conference which can be satisfied by the firm with the specific products or resources. There are several methods of foreign market selection, but among these, there are the following: a) the model relied on the score-the main stages of this model are the following: The data collecting, the indicators identifying and selection The data conversion into comparable indicators The indicators weight The market hierarchy b) The General Electric Matrix General Electric (McKinsey)- practically, it is a way of relating the strong points of the firm to the market opportunities through creating a matrix having as coordinates the market attractions and the competitive power of the firm. This model may be used as such or in addition to the model based on the score. In the latter case, the markets are already hierarchized, and, in the GE analysis, there will be taken into account only the markets that have been placed on the first places. The firms with international vocation have the intention to create a balanced portfolio of the markets, that may lead to the accomplishment of certain objectives such as the decreasing of the risks and the increasing of the profits. The estimated result is to harmonize the strategic objectives of the firms with the characteristics of the markets. A firm selects its domain or market according to the way in which its resources become competitive advantages and to the risks related to the alternative strategies. In order to create the international markets portfolio, the market specialists have developed the diverse models and the methods, according to the firm strategy. Among these we mention the BCG method (Boston Consulting Group), the method General Electric/McKinsey, The Ansoff Matrix and the ADL model (the Arthur D. Little matrix). The main ways used by the enterprises to get into the target- markets from other countries are the export, the association with other societies and the direct investment (the last one is the riskiest one, but at the same time it is the one with the greatest profit potential). Often, the firms start to make their business international through export operations that frequently sustain an important weight of their 177 Knowledge Based Organization 2008 International Conference activities, even when they start and develop other new ways of internationalization of their business. The risks associated with the export are: the risks related to the physical integrity keeping of the wares and to logistics, the judicial risks, the currency risks, the currency transfer risks, the risks of not being paid, the risks of covering the interest rate, the risks related to price, the managerial risks. The associations with other firms for producing and commercialization of the goods or services usually have better perspectives to obtain benefits, but there is a series of disadvantages which could not be neglected, such as: a diminished control of the partners’ activities, the possibility that, in time, the partners may become competitors, the misunderstandings concerning the policy of investments, the marketing, etc. These strategies of association take several forms, as can be seen: licensing, franchising, management contracts, strategic alliances. The direct investments imply mostly the firm in the activities on the international market by creating production capacities or assembly lines abroad. As it can be seen in the following picture, the less risky is the export, while the most risky are the foreign direct investment, especially the greenfield ones.
Association with other firms -Contractual aranjaments Direct investment (licensing, -Acquisitions franchising) -Mergers Export -Strategic alliances -Greenfield -Indirect -Joint ventures investments -Direct -Management contracts
Degree of Risk, Engagement, Control, Profit Low High
Sursa: Adaptation after Philip Kotler, Principiile marketingului (Marketing principles) Editura Teora, Bucureşti, 2001, page 243 178 Knowledge Based Organization 2008 International Conference
The firm has the possibility to get the entire control over the operations, it may develop production and marketing policies on long term, it may also obtain reduced production costs by using the local work-force and the raw materials from proximity, it may become the beneficiary of the incentives given by the host-state, and also of the positive image because of the new jobs created by the firm. Even so, the risks related to direct investments are big enough: the currency restrictions, the depreciation of the national currency or, the worst situation, the expropriation. The country risk analysis is fundamental for taking the best decision for investment or for production delocalization in a certain country or region. But what are risks, after all? Theoretically, the risk is an undesired event that leads to the lack of fulfilment (partial or total) of the purpose of the project, in the time mentioned, at the quantity required, at the established cost. The risk can be defined as the degree of sacrifice, assumed and accepted by the event operator, while the uncertainty represents the probability that a certain event may appear and disturb a certain activity or action. The risk has two main components for a given event: the probability of the event appearing and the impact of this act. The risk theory may also define two other notions, those of inherent risk and of residual risk. The inherent risk means the exposition at a specific risk without taking into account any measure for the managing or reducing the risk, while the residual risk represents the exposition at a specific risk after taking into account the measure used for its managing, supposing that the measure is efficient. The risks can not be fully avoided, some risks, named „residual” are not predictable, and can not be covered. In audit, another notion is introduces: the risk of control, meaning the risk as a material mistake that was not prevented nor detected in time by the intern control system. Among the most used methods in the risk management we can mention: - the statistic methods, which may give useful indications for identifying the influences that interact and for the settling of their relative importance. - the computerised simulations (expert systems); 179 Knowledge Based Organization 2008 International Conference
- the analysis of regression, based on the past experience, which try to foresee the future evolution resulted from past data and information. According to the factors that are the basis of the risks genesis, the risks may be systematic and non-systematic. The systematic risk depends on the general economic factors, such as inflation, political debates, corruption, intellectual property piracy which form and describe the general frame of the economic life development of the host country or which is due to the impact of the global phenomena (recession and economic crisis). The unsystematic risk is made of intern factors which are linked to the intern conditions of the enterprise. As opposed to the factors that constitute the systematic risk, the factors that compose the unsystematic risk may be taken under managerial control and diminished. The most important risk at which may be considered by the firms that try to entry the international market is the country risk, defined as the risk of exposition to a potential sacrifice of real active/business as a result of the economic, political, social events production. All these events are considered, from a certain level up, at least partially, under the control of the product owner/manager of the firm. The country risk is a complex risk, an aggregate indicator that resulted from the conjugated action of varied number of economic, political and social factors, capable of affecting entirely the potential and the real profit of an investment on the international market. This indicator is warning the firms that are involved in the international transactions over the danger of booking the loss. The most known types of models for country risk analysis are the following: the formal models, the statistic models, the models based on scenarios, the models based on control lists, the macro-financial models, the econometrical models, the banking models, the in-house models, the models based on Delphi technique. The most known models on a international range are: „The Economist” magazines model, the „Euromoney” model, „The Institutional Investor” model, the Political Risk Services Group Agency (PRS Group) model, the ,,Lloyds" financial group model, the Business Environmental Risk Intelligence model (BERI), the Moody's and Standard & Poor's rating agencies model. The country risk is a complex one, for which 180 Knowledge Based Organization 2008 International Conference insurances cover only partially the hazards and which is permanently scrutinized by the rating agencies. In the pre-investment phase, when the opportunity for the foreign investment is analysed together with the choosing of the best strategy of entering the external market, there must be taken into account the reference between the potential profit, the perspectives of the local development of the business and the risk degree at which the operation is exposed. When the decision for investment is substantiated there are also recommended many techniques that have as a consequence the restriction of the country risk effects over the investment. Among these the most important are: a) the avoidance of the risk b) the insurance against the risk c) the granting of concessions d) the techniques used for political risk control The country risk is only one of the external risk components, among which there could also be mentioned: the cultural inadaptability, the contractual risks, the environmental risks, the interest rate changing risk, the currency risk. There could not be missed the fact that even the sector of activity on the target-market shows several types of uncertainties: of demand, of raw materials availability, of work force, of complementary and substituent products, the consumers’ preferences changing, and, finally, the risk related to competition and technology. Because the markets are in transition and consequently not stable, emerging markets offer an opportunity to investors seeking for new countries to sell their products and services. Surely, the investors should keep in their mind the possibility for some economies to fall back into a civil war or a revolution sparking a change in government could result in a return to nationalization, expropriation, and the collapse of the capital market. Significant exchange rate fluctuations could transform into an all-out devaluation resulting merely from investors speculating in the possibility of political disorder or losing faith in the banking system. Since the risk of an investment in an emergent economy is higher than one of a
181 Knowledge Based Organization 2008 International Conference developed market, panic, speculation and immediate reactions are also more frequent. Nevertheless, the bigger the risk, the bigger the reward, so emerging market investments have become a standard practice among investors aiming to diversify while adding risk. From this point of view, Romania is not an exception and its status of being an E.U. member soared its chances to attract foreign investments. In order to illustrate the issue of managing risks at the international level, I have chosen the case of OMV Aktiengesellschaft, one of the biggest listed industrial companies in Austria and Central Europe's leading oil and gas corporation. As stated in the document called “Code of conduct / „Corporate Responsability-our values”, to increase risk awareness across the group and to control risks, OMV has developed a single risk management system for the entire group, which evaluates risks at all corporate levels, ranks them according to urgency and provides the basis for appropriate responses. Moreover, the fact that risk reports have to be signed by the subsidiaries and the individual corporate units guarantees that the management levels responsible are also involved in this process. 150 people in 20 countries assess approximately 600 risks, combine these into 285 risks and point out the 15 principal risks separately as well as the strategies taken to avoid them. In order to maintain profits, the company reduces the economic risks caused by prices fluctuations („market price-commodity risk”) through diferent financial instruments, like hedging, put, or margin collars, swap. Other instruments are the future contracts (up to 24 months), OTC (over-the-counter) with important banks; The currency fluctuations are periodically scrutinzed (at least once a year) by analysing the impact of USD and Euro variations over the group’s cashflows; interest rate fluctuations are analysed through evaluating the loans portfolio; from this prospective, OMV has defined certain limits, as follows: - proportion fix/floating interest rates: 50/50; - currency mix: 80% Euro / 20% $; - falling due: the average is over 6 years; - the maxim limit of lending within 12 months: 50 millions $. 182 Knowledge Based Organization 2008 International Conference
A special attention is given to the juridical risks, pre and post acquisitions, to the technological risks, to the environmental risks and to other types of risks. Expansion on foreign markets, in the globalization context, has become a must for many companies and OMV AG makes no exception. One of the countries where OMV decided to enter was Romania. The company has analyzed the country risk rating in the last years; according to Moody’s agency, there was a decrease of trust in the local economy until 1998, but afterwards, the ratings have gradually increased, as it is shown in the following table:
The evolution of the country risk for Romania
Date Rating for Trend Rating for Foreign Trend Foreign Currency Bank Currency Debt Deposits 06.03.1996 Ba3 23.12.1996 B1 14.09.1998 B1 ▼ B2 ▼ 06.11.1998 B3 ▼ Caa1 ▼ 19.12.2001 B2 ▲ B3 ▲ 16.12.2002 B1 ▲ B2 ▲ 11.12.2003 Ba3 ▲ B1 ▲ 06.10.2006 Baa3 ▲
Source: Moody’s investors service
In spite of several problems and of the economic decline registered during the period of transition to the market economy, the member statute of the European Union has brought a plus attractiveness for the foreign investors; the strong points for Romania are considered to be: the intern market perspectives and dimensions, the very well qualified work-force, a reasonable level of the costs, a certain degree of public duty which was accepted abroad, a growth of the direct foreign investments flow and the achievement of a high level of the currency resources. Hence, Romania became in the last
183 Knowledge Based Organization 2008 International Conference ten years a tempting target for foreign investors. OMV was attracted by Romanian market for many reasons: natural reserves of oil and gas (over 200 millions tons of oil), the market potential, the strategic position of Romania (on the trace of the Nabuco project and Constanţa-Trieste pipe-line), prospective of Romania to adhere to the European Union, geographic and cultural proximity, the distribution capacity (over 1600 gas stations) and refinery capacity (34 million tones of oil, annually).
Motivations of OMV AG to enter the Romanian market
Natural reserves of oil and gas
Strategic position of Market Romania potential
Motivations of OMV AG Perspective to enter the of Romania Romanian to adhere to market Distribution the EU capacity
Geographic and cultural Refinery proximity capacity
Source: the authors
OMV has decided to enter the Romanian market step by step, like this: a. Greenfield investment- setting up a chain of gas stations (1999) b. Portofolio investment of 25% in Rompetrol group (2002) c. Consolidation of the pozition through direct investment by the acquisition of 51% from the shares of SNP Petrom SA (2004). Before the last transaction, OMV has taken into account the following elements: 184 Knowledge Based Organization 2008 International Conference
Elements of non-economic risk, such as: a 1) international position; Romania has had a geostrategic position in Europe, having natural resources, including oil and gas, but has had an undeveloped infrastructure. Being a NATO member state, the war risk was extremely low a 2) internal stability; the civil war risk or that of setting up an extremist government were very unlikely to occur; strikes could not put in danger the internal stability a 3) external image; this element was affected by complex factors, such as: - the risk of nationalization or of other extreme measures, like indigenization, was small, Romania guaranteeing the proprieties according to the Constitution. - the risk of natural calamities could not be neglected, an earthquake over 7 grades on Richter scale being highly probable to occur in the future decade; the risk of floods has increased because of the negligence of the authorities Elements of economic risk, such as: b 1) macroeconomic management; this is characterized by elements like: inflation, economic policy –in fiscal, industrial, agricultural, customs, budgetary, monetary domains. Unfortunately even though the taxes’ level was not very high in comparison with other countries in Europe, the excessive number of duties, incoherence and legislative stability, have determined some foreign firms to withdraw from Romania (such as Colgate Palmolive or Shell). The income tax varied between 38% and 16%, VAT fluctuated between 18% and 22% in the transition period. b 2) economic conjuncture given by internal and international events; from this point view, the quality of Romania as a NATO member state and the prospective of its adhering to EU, was likely to bring international credibility b 3) balance of payments which reflects the totality of payments or incomes of the country in rapport with other states; however, there was a risk given by a dropping of exports volume and an increase of energy imports b 4) the external debt; in 2004, the year of Petrom’s acquisition by OMV, the external debt was 39.5 billions euro. 185 Knowledge Based Organization 2008 International Conference
The evolution of the newly formed company (OMV-Petrom) after 2004, shows the success of OMV on the Romanian market; at the end of 2007, the local market was dominated by OMV-Petrom, with 750 gas stations and two brands, with a market share of 30-35%, Rompetrol being second in rank, after KazMunaiGaz taking over, with a 18-20% market share, followed by Lukoil, MOL şi Agip.
The combustibles market in Romania, at the end of the year 2007
OMV-Petrom 35% Rompetrol 20% Lukoil 14% MOL 13% Agip 2% Independenti 16%
Source: the authors
As a conclusion, firms could achieve increased sales, brand awareness and business stability by entering new markets. Developing a market entry strategy involves a serious analysis of the potential competitors and possible customers. Choosing the best way to enter a market is no simple assignment. Should the market entry objective be rapid acquisition of significant market share or stay below the radar to secretly build market share? There is no single strategy to fit all companies, marketers should be both creative and cool minded when they decide to choose the right path in order to enter foreign markets. The emergent countries are always one of the best choices in order to invest, since they usually reward the people who bet on them by returning the shareholders in time high rate of profits and market shares.
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THE ADMINISTRATION OF THE FISCAL SYSTEM AND THE OPTIMIZATION OF THE FISCAL GATHERING
Asst. Prof. Ispas Roxana, PhD
University of Craiova, [email protected]
Abstract In the following paper I have tried to contuse the notion of optimum fiscal system starting from the 2 acceptations about the drawn of financial resources. I have conclusion that apart from the direct purpose of the fiscal system to drawn the necessary resources for the financiering of the public expenses, this can be an effective way to encourage the economical growth, through the capacity to stimulate positive externals generated by the economical growth.
Keywords: financial relaxation, fiscal, budgetary incomes, fiscal neutrality, budgetary deficit
Naturally, the human behavior tries to avoid, as possible as it can, the taxes. The try to minimize the fiscal contributions isn’t illegal. These behaviors must be anticipated by the fiscal authorities and there should be greeted with promoted measures to avoid the distortion they introduce. Furthermore, there is a tendency of illegal fiscal evasion for which prevention and control are imposed the organization and efficient administration of the fiscal system. Taking into consideration the fact that the fiscal system absorbs resources, the efficiency is transposed into the minimization of the consumed resources. The optimum is reached when it is obtained an equal between the marginal expenses for the administration of the fiscal system, opportune by the growth of the number of employees that are involved in the prevention 187 Knowledge Based Organization 2008 International Conference and control activities at the level of fiscal authorities, on one hand and the benefits, that is the marginal incomes generated by this growth, on the other hand. There is a clear distinction between the fiscal evasion and the tax exemption. The first has been defined as an expression for the illegal behavior, which can generate penal sanctions, while avoiding the taxes is the behavior answer to the appliance of the fiscal system, in the conditions of respecting the law. Generally these behaviors imply either the modification of the consume, or of the investment options. These behaviors aren’t regarded as social harms; furthermore, as we said before, the purpose of the fiscal legislation is that, to modify the tax-payers behavior. Still, in the cases when the taxpayers built complicated mechanisms, based on deficiencies of the legislation, with the purpose to minimize their fiscal contribution, it may be said that the tendency to avoid the taxation policy, it contravenes at least to the spirit of law. In conclusion, a complicated fiscal is a good manoeuvre space to find some lacunas, useful for the minimization of the fiscal contributions. From another point of view, the declaration and tax payment implies expenses for the tax payers, eventually taxes for fiscal consultancy or, in the cases of the economical agents, expenses with the salaries of the personnel involved in the in the filling of the imposition statements. Sometimes it is possible that the fiscal system to be so complicated to induce hard feelings to the taxpayers or the feeling that they have paid more than necessary, in the try to minimize the fiscal contributions. That is why, the simplification of the fiscal system has as a purpose the decrease of the costs of declaration and perceive of the taxes and in the same time the promote of the correct and equitable functionality feeling. The dimensioning of the public resources starts from the estimated public needs, being a maximization function for the fiscal resources attracted in the imposed conditions by the objectives of the general economics politics. These objectives are regularly focused on the economic development that is on the assurance of a certain sustainable economical increase, having as intermediary objectives the stimulation of one/more certain 188 Knowledge Based Organization 2008 International Conference economical branches, the stimulation of investments or the induction of a certain state of optimism and trust in the national economy. In such cases, the following of these objectives is in conformed to the fiscal neutrality, may lead to the appearance of the budgetary deficit.1 The optimization of the financial resources has two acceptations: on one hand, the projection of a fiscal system that, besides the integration in the general purposes of the economical politics, to assure the maximization of the drawn resources; and on the other hand the efficient administration of the projected fiscal system, that would assure the optimum collect of the resources, so the minimization of fiscal evasion. To project a fiscal system that would generate the maximum of the budgetary gatherings, there must be taken into consideration the structure of it, the total of taxes that come into its component, what has to be adjusted to the economical reality so that it will assure a more larger taxing base, the reduction of possibilities to “avoid” the taxes and the dimensions of the taxes cotes. As for the optimum imposition cotes, these have as a determinant the Laffer2 curb, that is applied to the budgetary incomes that result from the taxes (Fig. 1). This theory can be seen globally at the level of the fiscal degree or individually, at the level of each compound tax of the fiscal system. As it can be seen, there are two fiscal levels that don’t generate budgetary incomes: 0% and 100%. Between these two levels, to each of the budgetary income there correspond two imposition cotes: one in the admissible area and one in the prohibited. It is seen, from the graphic that while the imposition cote increases, the budgetary incomes increase too, but with a decreasing rhythm, until the O* point when this is plafond, generating the highest budgetary income volume. After that, when the imposition rate increases, it is passed into the prohibited and the budgetary incomes tend to decrease, thanks
1 The budgetary deficit that appears in such case can be covered through public money loans from the central bank (money emission) and/or loans that are public extern or intern, not monitored. 2 Arthur B. Laffer (born 1942), north American economist that has proven that after the optimum level of the imposition rate of the incomes, the budgetary cash decrease because of the discouragement of the investors. 189 Knowledge Based Organization 2008 International Conference to the discouragements of the investors and the economical activity. The optimum point (O*) corresponds to the fiscal degree or the optimum tax cote t*, that assures the maximum of the budgetary cash.
Fig. 1 Laffer3 Curb
A theoretical solution that could be used to optimize the drawn of budgetary incomes consists of the abrogation of this theory at the level of each compound tax of the fiscal system and the determination of the specific cotes of t* type, that generate the maximum of budgetary incomes or the abrogation of the theory at a global level of the fiscal degree. But this abrogation implies distortions induced by the differences between the variable types of taxes that are a part of the fiscal system. Starting from Laffer’s theory, through econometrical regression to the equation of the budgetary incomes, on the base of the statistical observations regarding the previous incomes and eventually by introducing in the regression other determinant variables, according to the specified conditions of the national economy, such as the usury rate, that affects the budgetary incomes through the decrease
3 Arthur B. Laffer, - The Laffer curve: Past, Present, and Future, Backgrounder Nr. 1765, The Heritage Foundation, 2004, p. 1. 190 Knowledge Based Organization 2008 International Conference or stimulation of the investments, or the inflation rate that can have an inhibitive or stimulating effect upon the economical activity, there can be determined the cotes that maximize the budgetary incomes. The main condition for the viability of the regression is that of the utilization of history of the different types of taxes that enter the structure of the fiscal system. In the case in which this history is missing, there can be used the estimation method in the case of a limited number of registrations, but the result must be treated carefully. In the economical literature, the result of the studies that are focused on the determination of the optimum levels of the imposition cotes or of an optimum level of the fiscal degree have been, generally, very un conclusive, mainly because of the fact that the Laffer model is static, and it’s appliance for a real economy, that is in evolution, is not relevant. Therefore, thanks to the variation of the economical conditions determined by the economical evolution, the Laffer theory still stands as a descriptive theory, without any practical appliance as for the maximization of the fiscal incomes, being used mostly as an argument that is meant to fundament the fiscal relaxation and to explain the apparent paradox of the increase of budgetary incomes in the conditions of the fiscal relaxation4. But the identification, even on empiric basis, of the optimum level of the fiscal, that furnish the maximum of the budgetary incomes, has continued and continues to be the object of the governs preoccupation. As for the efficient management of the fiscal system, this is transposed mainly in the existence of an efficient controlling system and in the clarity and conscience of the legislation that also has the simplifying of the fiscal procedures, so that these measures to minimize the fiscal evasion and the practical possibilities of that. The efficient measures for the fiscal control5 are generally organization aspects and methodological ones and among these are found:
4 This paradox is explained in the Laffer theory through the fact that the fiscal pressure is in a prohibitive area.
5 Iulian Vacarel, - Op. cit., p. 438. 191 Knowledge Based Organization 2008 International Conference
The unitary coordination of the control actions, to avoid insufficient overloads between them. The utilization with priority of the control method through straw poll in the detriment of the permanent control that implies the extensive activity of the control organs and inefficient resource waste. The existence of a control system that would take into consideration the probability and possible dimension of the risks, subordinating the control activity of the efficiency objective. The organization of a salary system and of promote that would allow the material and professional motivation for the hired personnel in the control organs. At the level of the regalement and fiscal procedures are necessary measures for: The unification of the fiscal legislation and of all foresees of fiscal nature form this. The correlation and integration of the fiscal law in the cadre of the general economic politics The simplify of the procedures and fiscal techniques The correlation of the fiscal facilities so that their appliance won’t generate fiscal evasion and neither opportunities to avoid the taxes. On the basis of these arguments, it can be drawn the conclusion that the optimization of the attraction of the budgetary incomes that need measures adapted to the economical environment in which they are implemented. And these must be integrated and correlated in the cadre of the economical politics, with the other components of these: the politic of public expenses and the budgetary balance and the monetary and value politics, so the ensemble effect to be the growth and sustainable economical development. After this pass of the aspects connected to the public financial resources, our opinion is that besides the direct purpose of the fiscal system, to assure the necessary resources for the finance of the public expenses, this can be an efficient way to encourage the economical growth, through its capacity to stimulate positive externs generated by the economical activity. Through the fiscal relaxation it can, after the existing capacities in economy, to stimulate the offer and through this attract the growing fiscal 192 Knowledge Based Organization 2008 International Conference incomes. That is why, we consider more important to assure the financial public balance is the efficient gestation of the fiscal system than the raise of the fiscal level. In this context, we think that there is a connection between the effects of the fiscal politics and the concrete situation from the economical environment in which there are applied the measures of this politics (the type of competition that characterizes the market, the availableness of the production capacities so on), which implies an abrogation of the fiscal politics, correlated with the national economical state and with the other promoted politics. Also, in our opinion, the economical objectives of the fiscal politics aren’t supposed to prime in front of the fiscal equity and these principles should be respected in all the cases.
References [1] Brochner, Jens, Jesper Jensen, Patrik Svensson, Peter Birch Sorensen: The Dilemmas of Tax Coordination in the Enlarged European Union, IFIR Working Paper no.2006-11, October 2006. [2] Devereux, Michael, Simon Loretz: The Effects of EU Formula Apportionment on Corporate Tax Revenues, Oxford University Business Centre, WP 07/06, October 2007. [3] Halligan, Aoife: The Future of Company Tax in the EU?, European Policy Centre, Commentary, April 2004. [4] Heckly, C. Fiscalite et mondialisation, LGDJ, Paris, 2006. [5] Oestreicher, Andreas, Christoph Spengel: Tax Harmonisation in Europe. The Determination of Corporate Taxable Income in the EU Member States, ZEW Discussion Paper No.07-035, June 2007. [6] Rabitsch, Katrin: Eastern European Integration and Tax Competition, Wirtschafts Universität Wien, Discussion Paper nr.26, September 2007. [7] Rixen, Thomas, Susanne Uhl: Europeanising Company Taxation - Regaining National Tax Policy Autonomy, Friedrich Ebert Stiftung, International Policy Analysis, July 2007. [8] Zipfel, Frank: One Europe, one tax? Plans for a Common Consolidated Corporate Tax Base, Deutsche Bank Research, EU Monitor 49, September 2007.
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FINANCIAL CRISES AND THEIR IMPACT ON THE ECONOMY
Asst. Prof. Merce Eugeniu, PhD
“Alma Mater” University, Sibiu
Abstract A long time passed since the Great Depression. Many people thought that those moments would not come again, that the necessary lessons were properly taken into consideration. However, during the last decades, many crises broke out in different countries and regions of the world. The present world financial crisis determines governments, financial institutions, corporations all over the world and the whole population to be in a permanent anxiety. The effects of the crisis affect everybody.
Keywords:economic crises, economy, unemployment rate
The economic crisis from 1929 – 1933 broke out suddenly after a period of prosperity and optimism. After the 1st Word War, in USA followed several years of prosperity, USA being considered the land where everything is possible. Other countries such as Great Britain and Germany, which had high debts, resorted to the USA for loans. In USA, the investors, the businessman and usual people bought massively stocks at the stock exchange. The companies resorted to high loans on short term, as they were convinced of the success of their business and the possibilities for reimbursement of the credits. On the stock exchange market the prices grew 4 times between 1921 and 1929 and brokers offered small investors loans higher than 2/3 from the value of the stock which have been bought. The number of the loans grated to the stock exchange speculators grew from 2,5 to
194 Knowledge Based Organization 2008 International Conference approximately 8,5 billions US dollar and the number of speculators represented nearly 6% from the US population. The stock exchange index grew 100 to 2161 points, value that exceeded considerably the real values of the companies. As a consequence, the dividend / stock decreased and this determined the investors to sell the owned stocks. In order to control the situation, the US government encouraged the increase of the interests on short term with more than 10%, what determined the stock exchange operators to have a lack of trust regarding the perspective for winnings. The lack of trust and the panic generated a reselling behavior for the stocks that have been bought, culminating on the 24th of October 1929, when there were offered for sale 12 million stocks without any buyers. The quotations of the stocks collapsed. The 24th of October remained in the memory as the Black Thursday. The stock exchange crisis determined a credit crisis which limited the financing possibilities for restarting and developing the production, and on the other side, limited the consumption which until then had been substantially supported through credits. The consequences were the decrease of the solvent demand, the growth of goods stockage and subsequently the reduction and even the blocking of the production. Between 1929 and 1933, the industrial production from USA decreased with 50%, the value of the stocks decreased to a tenth of their value prior the crisis, the number of the unemployed people grew from 1,6 to 12,8 billion. The unemployment rate grew from 3% in August 1929 to 25% in March 1933. the index of the industrial production decreased from 114 in August 1929 to 54 in March 1933, recording a 52,6% decrease. The demand for money decreased with 35% and prices increased with 33%. The banks had a lot of problems, one third of them closed done or were taken over by other banks. In USA the gross national product decreased substantially between 1929 and 1933
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US GNP in constant and current prices
Year GNP at constant prices (billions GNP at current prices (billions of $) of $) 1929 104,4 104,6 1930 95,1 91,2 1931 89,5 78,5 1932 76,4 58,6 1933 74,2 56,1
The crisis extended to other countries in North America and Europe.
The index of the gross industrial production, 1929-1933
Country Canada Britain France Germany Italy US
Year 1929 100 100 100 100 100 100 1933 69 95 83 68 83 63
Source: Industrial statistics, 1900-1957 (Paris, OEEC, 1958)
The Romanian economy was also affected. The Exchequer was adverse for several years (3,8 billion Lei in 1930, 9,6 billion Lei in 1931, 5,7 billion Lei in 1932). In 1930, 1931 and 1932 there were two “sacrifice curves” upon wages. The difficult situation of the government finance have determined foreign loans: in 1930 a loan of 8 billion dollar with an interest rate of 8% from the “International Telephone and Telegraph Corporation”; in 1932 a loan of 1,3 billion CHF (8,7 billion lei) from the same corporation; in 1933 a loan in Switzerland of 50 billion CHF, amount that was granted to the Romanian National Bank in order to reinforce the stock for monetary movement.
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In the industry, the crisis phenomena appeared at the beginning of 1929 and at the middle of the year the crisis broke out in all industrial branches. The production quantitative and value index for some industrial branches developed in the following way:
Year 1928 1929 1931 1932 1933 Branch Quantitative • petroleum 100 112,9 157,9 157,9 172,2 extraction • coal extraction 100 100,6 63,4 63,4 49,8 Value • value of the 100 100,0 47,0 47,0 47,0 mining production • value of the petroleum 100 100,4 37,0 39,7 43,8 production • value of the manufacturing 100 92,1 54,4 53,4 47,3 industry
The consequences of the crisis within the industry were: large quantities of unsold goods; the decrease of prices; the decrease of the production; a lot of employees were fired. The agricultural crisis distinguished by the increase of stocks for agricultural products and by the decrease of the prices for Romanian agricultural products especially for export. There were and there will be crises. The most famous were: the crisis from Mexico (1994-1995), the crisis from S-E Asia (1997- 1998), the crisis from Russia (1998), the crisis from Argentina (2001). The crisis from Mexico burst out 4 days before Christmas in 1994, when the authorities announced that the Peso must be depreciated with 15%. The big banks from Wall Street and the investment funds which invested more than 50 billion dollar in
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Mexican stocks, bonds and government loans panicked. Who could, withdraw the money and in 3 days the Peso lost 30% from its value in relation to the Dollar. The first phase of the intervention from the Crisis Centre created from FED representatives, Finance Ministry, other members of the American government including the Committee of National Security, did not lead to any results. The project of the Clinton administration was threatened. The exchange rate for the Mexican currency was decreasing continually and starting with the 12th of January a mysterious phenomenon appeared, that nobody was expecting. Several national currencies from all important stock exchange centres all over the world got under pressure. Event more, starting with the 20th of January 1995, the exchange rate for the dollar followed a decreasing curve. Alan Greenspan, the former chief of FED warned that the refuge to quantitative currencies as the Japanese Yen and the German Mark were considers, threaten “the global trend towards the market economy and democracy”. The first plan did not succeed. The so called “Plan B” was put into practice, based on the intervention of the American government of 30 billion dollar, of IMF of 17,7 billion dollar, of the Bank for International Adjustment and of the Canadian government. One considers that “in less than 24 hours, less that 10 person, without any parliamentary control, establish with the help of the money collected from taxes in industrial countries, the biggest international program for granting credits, which was approved after 1951”. Michel Camdessus, the chief of IMF considered that “it was the first big crisis of our new world of globalized markets” and “it would have become a real world catastrophe” if no one would have acted. Important is also the crisis from 1997-1998 from S-E Asia. During the prior decades, in S-E Asia was a fast going development and successes in the fight against poverty. The performances were impressive, being considered as the “Asian miracle”. IMF and the US treasury thought or at least stated the complete liberalization of the capital markets will help the countries from that area to develop even faster. Having high saving rates, these countries did not need additional capitals. However, at the end of ‘80s and beginning of the ‘90s, the liberalization was imposed. The 198 Knowledge Based Organization 2008 International Conference consequence was first a high inflow of foreign funds and in 1996- 1997 followed an inversion. The foreign and inland investors withdrew their funds in order to place them in more secure markets. This capital exits represented 7,9% from GNP in 1997 and 12,3% from GNP in 1998. The abandonment of these countries by the investors determined the collapse of the local currencies which generated a financial panic within the markets. After the crisis from 1929-1933 a high number of American banks went bankrupt. The American authorities decided to separate the banking activities (deposits and credits) from investment activities on the capital market. It was the consequence of the collapse of the American stock exchange. By the Glass-Seagal Law, the financial entities were separated in commercial banks and investments banks. The investment banks were built as non-banking financial entities with activities regarding the purchase and the sale of stocks for themselves and also for advising customers from the capital market regarding mergers and acquisitions, bond issuing etc. The American legislative provisions in this field were also taken over by the West European countries and by Japan. This separation of the bank determined also the separation of the monitoring activities: the commercial banks were monitored by the Central Bank and the investment bank by authorities supervising the capital market. Gradually, the differences between commercial and investment banks started to reduce. The commercial banks established subsidiaries for activities specific for investments banks. The investment banks established also subsidiaries for activities on the markets of the commercial banks. The financial dynamic and diversification created products at the trespass between the activities of the commercial and investment banks. Under these circumstances, the responsible authorities were forced to adopt gradual liberalization measures. In Europe the abolishment decisions regarding the two types of banks were met earlier: Spain (1974), France (1984), Great Britain (1987), Italy (1993).
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In the USA, the derivatives market started develop in the early ‘80s and exploded in volume and complexity in 2000 and especially between 2003-2007. At first, the market restricted to standardized products (options and futures), which were traded at special stock exchanges. The revenues of the entities from the financial services industry in USA were in continue development. Based on the excess of greed and decrease of the reference interest rates, the share of revenues of the financial services industry in the revenues of American corporations increased from 10% at the beginning of the ‘80s to 40% in the spring of 2207. One estimates that the profit of this sector increased during the last 10 years with 1200 billion dollar over the amount it was predicted. The law Glass-Steagall was partly invalidated in 1998 when the Travelers corporation of Sandy Weil who owned Solomon Smith Barney merged with Citicorp. The law Glass-Steagall was officially abrogated in 1999 and was replaced by the Law Gramm-Leach-Bliley, considered as the Financial Services Modernization Act. The new act eliminated the interdiction that commercial banks own investment banks and reverse. The two entities interlaced until a certain point. But the investment bank were not subject to the regulations of the Federal Reserve (FED) and did not have to respect restrictions regarding the capital. The investment banks are considered the head of the evil. The investment bank J.P. Morgan bought in 2000 the commercial bank Chase. Some commercial banks such as the Bank of America and Wachovia tried to create their own investment operations but with no success. The field of investments remained the advantage of the five big independent investment banks: Merrill Lynch, Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear Stearns. The volume of the derivatives followed an excessive and uncontrolled development. It is estimated that in the spring of 2007, at a level of about 50.000 billion dollar from global GDP, the volume of derivatives was about 750.000 billion dollar.
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The investment banks and insurance companies started an accelerated program for the “production” of financial derivatives contracts. The commercial banks, through their investment behavior contributed to the excessive development of credit, which determined the inflammation of the assets. The investments were made on the real estate market especially in the USA. A complex financial architecture was developed, by establishing new financial instruments named CDO (collaterized debt obligations) or mortgage backed securities in combination with credit default swap etc. The high offer of credits stimulated superficial investments and determined the increase of real estate prices in USA and also in some European countries such as Spain, Great Britain, and Ireland. The financing excess within the real estate market stimulated the development of buildings and subsequently a too large offer for houses. In this situation, in order to temper inflation, the central banks increased the interest rate. The increase of the interest rate brought the borrowers in inability of payment, which generated the lack of liquidity. The banks and the other financial institutions endured losses evaluated at more than 500 billion dollar. After a historical maximum in 2006, at the beginning of 2007, the American real estate market started to show signs of weakness and the prices for houses started decreasing. The ones who had mortgages with low interest rates at first started found themselves incapable of paying as the reference interest rates got higher. Many of the mortgage credits did not consider the real risks and were conferred to people with no creditworthiness. The gravity of the situation within the real estate sector jeopardized the economy of the USA, determining the recession. The first victim of the crisis was the financial field, especially: the investment banks, the speculative funds and the reinsurance companies. Through the secondary mortgage market, the credits awarded by local banks were transformed in bond packages guaranteed by mortgage corporations of the US government and sold on all Street. The continue decrease of the price of houses, the 201 Knowledge Based Organization 2008 International Conference increase on the insolvability rate for mortgages determined the decrease of the liquidity value of the institutional bond owners. As the debt level was extremely high and the capital reserves of the banks were minimal, the banks resorted to loans on the financial market in order to cover their losses. The increase of the interests and disbelief in the strength of the mortgage bond owning institutions generated a liquidity crisis. As a consequence of the increase of the credit cost and decrease of consumption, the manufacturing field was affected. Many companies decreased their activity and other did even stop it. The unemployment rate is increasing. The effects of the crisis upon the Romanian economy will become clear especially through: perturbations within the stock exchange and real estate sector; the slow-down and even termination of some investments simultaneously with the increase of the unemployment rate; the local banks will dispose of less money from abroad and this will generate some tension on the national currency; the increase of the interests which will affect event harder the real economy; the decrease of the direct foreign investment flow on short and medium term; difficulties for foreign trade and especially for export.
References [1] BBC News, Wednesday, 21 November, 2007. [2] Bloom Biz, 3rd of October, 2008. [3] Gardianul, 5th of October, 2008. [4] Gross, Daniel, Legea Depresiunii, in Money Express, 23.09.2008. [5] Friedman, Thomas L., Lexus şi măslinul, Bucureşti, Editura Fndaţiei PRO, 2001. [6] Horobet, Alexandra, Managementul riscului în investiţiile internaţionale, Bucureşti, Editura ALL Beck, 2005. [7] Marcu, N. (coord.), Istorie economică, Bucureşti, Editura Didactică şi Pedagogică, 1979. [8] Martiu, Hans-Peter, Schuman, Harald, Capcana globalizării, Bucureşti, Editura Economică, 1999. [9] Romanian Tribune ediţia 176 (anul 7, nr. 20); Friday 3rd of October 2008. [10] Soras, George, Criza capitalismului global, Iaşi, Editura Polirom, 1999. [11] Stiglitz, Joseph E., Globalizarea.Speranţe şi deziluzii, Bucureşti, Editura Economică, 2003. [12] Ziarul Financiar, 18th of September, 2008. 202 Knowledge Based Organization 2008 International Conference
THE MEASUREMENT OF THE ENTERPRISE’S FINANCIAL PERFORMANCES IN THE CONTEXT OF COMPETITION AND THE COMPETITIVENESS ASPECTS
Asst. Prof. Mihalciuc Camelia, PhD, Asst. Prof. Apetri Anişoara, PhD
”Stefan cel Mare” University, Suceava, [email protected], [email protected]
Abstract The search of the competitive excellence and the necessity of the performance administration have lead to the use of some administrative instruments oriented more towards the outside of the enterprise. In measuring the performances, the basic problems that appear are related to the external and internal organisms that can assure it, as well as their independency (especially in the case of the financial audit), the measuring of the performance being dependent on the information inserted din the measurement system and by the instruments used. The most common type of measurement-system problem, which can actually encourage a deterioration in relative performance, is caused by inappropriate rules. This usually occurs because of a complete misunderstanding of how measurement is used in feedback control. Too many, too few or inappropriate process performance measures can easily create a deterioration in overall performance. Simply identifying everything that can be measured gives no indication as to whether or not the complete set of critical system measures are being identified.
Keywords: the competitiveness, performance management, competitive advantage, performance measurement system
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1. Introduction In order to reassess the measurement activity, we need to identify exactly how measuring performance can lead to an overall improvement in the effectiveness of a business process. Only then we will be able to identify within this paper the very minimum set of measures of process performance that will enable the greatest return on the investment of implementing and maintaining the measurement systems. This paper has tried to present the instruments used in measuring the financial performance of the enterprise, withholding here elements that concern the concept of competition, the competitiveness, performance management, competitive advantage and performance measurement system.
2. The concept of competition and competitiveness As to the concept of competitiveness, this is debated by economists from all around the world, but there is not a universal accepted definition of this concept. Competition, as a concept, does not have a well established basis recognized by the community of the research economists, but in its broadest sense, in relation with the notion of competition, the competitiveness can be defined as an expression of a person’s, companies’, national economies’, products’, services’ ability to maintain itself in the national and international competition and to take benefit economically from it. Other attempts of defining competitiveness see the notion as being: ¾ the ability of an entity to win in the competition with its environment or its external environments in a certain time horizon; ¾ the ability of an entity to win in the competition with its environment or its external environments in a certain time horizon; ¾ the ability to supply goods and services in the place, time and way in which they are required by the buyers, and at better prices or prices as good as the prices of the other potential suppliers;
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¾ the ability to earn profit and to maintain the already earned market; ¾ the capacity of the companies or of a country to project, to manufacture and to sell goods and services, having some characteristics referring to price and not only, which make them more attractive for the clients than the goods offered by the other competitors; ¾ the ability of the nations to face the test of the free international market while they are increasing the real national incomes. Life is the first competition in which we take part, a competition with many levels, both biological and operational. The first demand of this competition requires going through the established stages; the second one requires following “the same rules”. All participants want to go over the route in such a manner that their performance would differentiate them from the other participants. According to “the rules of the game”/ the chosen system, the confrontation decides eventually its winners and losers. The winners of the confrontations within a market share the moment of success. But all the participants placed on the list further, continue the competition, adhere to the success logic and are being inspired by the optimization of their present performances [5]. This optimization of the performances leads to competitiveness. In order to win the competition, there is the need that the rival firms should try their competitiveness. The competitiveness is materialized in “the individual or in the group capacity to make a performance within a competition or if it is the possibility of a competition, to have a better position in proportion to the competitor”. Generally speaking, the term of competitiveness indicates a complex phenomenon concerning the capacity of a country – measured as comparing to other countries, in order to make up and to maintain an environment (economical, social, political) which should sustain the fast making of the added value (with an important proportion concerning the growth of the welfare). In OCDE’s opinion, the competitiveness represents the enterprises, industries, fields, regions, nations and extra national regions capacity to maintain a profit for the production factors and a 205 Knowledge Based Organization 2008 International Conference high level of use on a lasting basis existing and being exposed to the international rivalry [4]. The competitiveness offers the possibility of the comparison among countries or of the commensurability of their results (the growth level in the future, the position which it has within the world economy). The competitiveness term is also used sequentially for smaller domains (the international trade, the market of the goods, the oil market and so on). Moreover, any enterprise must be competitive. Generally, the competitiveness comes from the mixing of two elements: the efficiency and the effectiveness. The efficiency consists of satisfying some needs which develop all the time. In the same time the efficiency represents the capacity to save the means in order to obtain a certain result. It is obvious that the bound between the efficiency and the effectiveness is both necessary and doubtful, and more specialists – practitioners and theorists equally – appreciate that the effectiveness is obtained as a result of the experience.
3. The competitive advantage and the competitive business environment We notice the existence of many approaches of the competitiveness concept, namely it may be talked about the competitiveness at the level of the: product, organization, field, nation and so on. The term of economical competitiveness might be approached at the micro economical (the competitiveness might be described as the capacity of a micro economical structure (unit, firm) of winning or of defending a market segment) and macro economical level (the competitiveness may be defined as the capacity of a macro economical structure of winning or of defending parts from the external and the internal market). It is sure that it is talked at the same time with the competitiveness about the competitive advantage owned by one organization or another within the market economies. In order to have a competitive advantage, the organizations must: know and adapt at the customers’ demand, make quality products, be innovator and be efficacious.
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Without a competitive advantage, a corporation has limited economic reason to exists its competitive advantage is its staff of life. A good corporate strategy should integrate an organization’s goals, policies, and action sequences (tactics) into a cohesive whole, and must be based on business realities. Business enterprises can fail despite 'excellent' strategy because the world changes in a way they failed to understand. Strategy must connect with vision, purpose and likely future trends. Ways to win a competitive advantage: become the low- costproducer; make the best-made product; provide customer more value for the money, save customer money; provide more convenient locations; make more reliable and durable product. If, for a long period of time, the international specialization of the countries was oriented towards the competitive advantage theory which was based on the existence of some natural abundant resources and on a competitive business environment, today, the success and the specialization of the national economies depend more on the competitive level of the companies from the national and international market, on the evolution and their profit, on the assimilation of the technical progress and less on the existence of the natural resources.
4. Performance measures and performance measurement systems Performance, on the other hand, is an even broader term that covers both overall economic and operational aspects. It includes almost any objective of competition and manufacturing excellence whether it is related to cost, flexibility, speed, dependability or quality [10]. Performance can be described as an umbrella term for all concepts that considers the success of a company and its activities. Measurement has become such an accepted approach within organizations that considerable effort is expended in trying to identify “What” can be measured and “How” to measure it. Every measurement activity incurs costs to both implement and maintain. Every additional measure is potentially reducing the efficiency of the process. Without the knowledge of the exact circumstances under which a measurement system either will or will not improve the 207 Knowledge Based Organization 2008 International Conference performance, it is difficult to genuinely justify the additional cost of implementing a measurement system. The global rules of performance were: competitive advantage; market Leadership: be number one or number two in the market; profitability: well above average real returns on investments [2]. Performance measures are necessary to enable organizations to survive in agile environments. The specialists described performance measurement as the process of quantifying action, where measurement is the process of quantification and action correlates with performance. An important requirement of a performance measurement system is that there must be a clear link between performance measures at the different hierarchical levels in a company, so that each function and department strives towards the same goals. Performance measurement is a complex issue that normally incorporates at least three different disciplines: economics, management and accounting. In order to select appropriate performance measures and design a suitable performance measurement system for a particular organization, a number of factors must be considered. The rapid changes in the environment and hence in organizations has led to changes in business benchmarking and performance measurement.
5. Benchmarking complementary instrument in administrating the global performance Performance measures and performance measurement systems have historically been designed and managed by accounting and finance functions within organizations. This has caused organizations to manage most of their projects on the basis of outdated cost and finance oriented lagging measurements. According to many researchers, this has had a detrimental affect on the development and effectiveness of the benchmarking concept. Considered an instrument - support for taking decisions, benchmarking is” a continuous process of evaluation, a mean of searching for the most profitable methods of accomplishing a certain given activity”[1]; it is “a system of information that allows an 208 Knowledge Based Organization 2008 International Conference enterprise to show her development strategy”[7]; “a technique of determination of the competitive advantages and to learn about her products, services and operations by comparing them to the best”[3]; a continuous process of improving the enterprise’s performance with the goal of obtaining a superiority towards the competition [9]. Benchmarking allows the enterprise to evaluate itself in comparison to the relevant standards, and if it is lead correctly according to the external standards or other enterprises, it allows obtaining pertinent information regarding the competitive position of the enterprise [8]. By making direct comparisons between the functional and operational processes of some enterprises that belong to different sectors with the purpose of identifying their competitive advantage sources, benchmarking is an instrument of analysis that overcomes the frame of the sector studies, being a new managerial practice. In the economic practice benchmarking is a veritable state of spirit that stimulates the manager’s and the personnel’s activity in continuous search of the progress [6]. The benchmarking process is similar to the methodological process of research used in the administrative sciences that are familiar to the practices and methods of action- research such as [9]: identifying the object and the competitive context, choosing the collecting methods of the data; measuring and analyzing the performance deviations; a convincing presentation of the results and of their implications, that will sensitize the personnel, as it does through the total quality intercession, with the purpose of gaining its support; defining the objectives and the action plans necessary for improvement, adapting the methods to the best competitors, by controlling the results after defining the new guiding mark. Numerous enterprises see benchmarking as a performance instrument that allows the improvement of their competitiveness and efficiency, as a consequence of the improvements in the enterprise’s processes. A major advantage of the method consists of its possibility to be inserted into the current administrative system, being able to improve the classic instruments (budgets, cost analysis, board table).
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The role of benchmarking is directed, especially, towards the understanding of the processes that lead to a lack of performances, and this allows knowing the methods that favors obtaining better performances, benchmarking offers the managers’ real objectives, allowing also the elaboration of lack elimination strategies. The essential role of benchmarking is to change work processes and methods at the level of an organization or corporation based on the obtained data, for its efficiency to grow, ad its purpose is that of making aware the manner in which other organizations establish their performance levels and the way in which they reach that performance.
6. Conclusions Because the ways of action are multiple, the managers have to express a clear option regarding the strategic objectives. It results that, economically, creating the strategy of a company represents the process through which its mission is defined, the necessary objectives to be realized are inferred, the adequate methodology to reach the goals is chosen, and the ways of applying it are mentioned. We think that in a competitive environment, the starting point is determining a competitive position, establishing the economic objectives, including the terms of income, the market and profit rate, and then formulating the necessary strategies to obtain a new position on the market. The role of these strategies is to increase the position of the companies from the current position to a more competitive one.
References [1] Albu, N., Albu, C. –Instrumente de management al performanţei, vol. II, Control de gestiune, Editura Economică, Bucureşti, 2003. [2] Anderson, K., R. McAdam – An empirical analysis of lead benchmarking and performance measurement Guidance for qualitative research, International Journal of Quality & Reliability Management, vol.22, nr.4, 2005. [3] Hilton, R., H., Maher, M., W., Selto, F., S. – Cost management – Strategies for Business Decisions, McGraw Hill Irwin, 2003. [4] Iordan Mariana şi colab. – Competitivitaea unor sectoare ale economiei româneşti in *** volume - Convergenţe economice în UE, Editura Economică, Bucureşti, 2002.
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[5] Missoum Guy, Minard Jean-Luc – L’art de reussir, Les Editions d’Organisation, Paris, 1990. [6] Niculescu, M. – Diagnostic economic, vol. I, Editura Economică, Bucureşti, 2003. [7] Niculescu, M., Lavalette, G. – Strategii de creştere, Editura Economică, Bucureşti, 1999. [8] Rusu, C. – Diagnostic economico-financiar, vol. I, Editura Economică, Bucureşti, 2006. [9] Tabără, N., – Modernizarea contabilităţii şi controlului de gestiune, Editura Tipo Moldova, Iaşi, 2006. [10] Tangen Stefan –“Demystifying productivity and performance”, International Journal of Productivity and Performance Management, Vol. 54 Nr. 1, 2005.
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ECONOMIC CALCULATION USED IN WORK SAFETY DOMAIN
Asst. Prof. Eng. Popa Simona, Ph.D, Ec. Rujoiu Elena
Petroleum-Gas University of Ploieşti, [email protected] Petrotel Lukoil Ltd., Ploieşti
Abstract Elaborating evaluation methods for professional illnesses and work related accidents cost represents a reason to allocate resources for health care and safety at work. For accomplishing the security in work, an objective criterion of substantiating the decision regarding the resources allocation consists in economical efficiency. There are two alignments regarding the improvement of the security in work. The first one is of a psychological order, emphasizing the fact that any work related accident may be avoided by the employees if the imposed measures are taken. The second alignment is of an economical order, the initiators of it being the researches of the USA.
Keywords: security, time, work, risks, efficiency
1. Introduction Taking into account the first alignment regarding the improvement of the security in work, it is useful that the employee to be protected during the activity and, also, it should be taken into account the avoidance of a dangerous behaviour of the whole personnel at the place of their activity. Regarding the economical order orientation, the main idea is that the work related accidents and professional illnesses, considered as
212 Knowledge Based Organization 2008 International Conference being activities of resources consumptions, should be seen through their efficiency point of view. Any manager has at his/her disposal at a given moment a limited volume of resources, whom he/she has to allocate on various domains That is why it is important for him/her to be aware of what part of these resources has to be distributed with the aim of avoiding the work related accidents and the professional illnesses. In normal conditions, the person who takes decisions has to use an hierarchy objective criterion of the values which are allowing him/her to distribute the efforts in a proper way of obtaining the social optimal. There is a big difference between the risks that are generating work related accidents and major professional illnesses, and those which are in fact awaked by the population. A direct consequence of this fact consists in the expending more or less useful of certain amounts. More than that, it is possible to lose more human lives because of the invalidity or decease. Treating the problem of the security in work more carefully we may save as well human lives as material resources. One of the methods with which it is made a correct approach of the diminuation and even of the risks elimination, it is represented by the evaluation of these, to have them hierarchied and implicitly to adopt the imposed measures. But it is difficult for any company to treat in the same time all the risks that show up, because it has not at its disposal an economical force big enough to solve the problem. That is why it is necessary and useful for the manager to have at his/her disposal economic arguments and especially financial ones. The things are alike also at the macroeconomical level, because the resources are limited and cannot be allocated integrally to save human lives. The thing that leads to the idea according to which the fonds that may be allocated to the security and health of work to be correct and efficient used, in a way of maximizing the economic and social effects. In this way, the economic criterion is the one that stays at the basis of the establishment of the place of work protection within the 213 Knowledge Based Organization 2008 International Conference other activities and also it is the one that facilitate the manager’s finding out directions within the work protection, for which he/she has to allocate more significant fonds. The establishment of the economic efficiency it is made on tha basis of the comparison of the obtained results with used resources, these one being quantified. It is known the fact that the company establishes a system whose elements are mutual intercuring to accomplish a common objective and to obtain a profit. The running of any company it is in this way cured by the existance of a profit, which has to be big enough to permitt the retaking of the production cycle and more over the adaptation at the actual economic conditions as for example the unpreceding evolution of the informational technology, globalization, permanent and fast changes on the market etc. Taking into account the facts previous exposed may appear the following question : how the general manager of a company can be motivated to allocate a part from its resources for an activity mostly considerated by the others to have only a social finality? More over, also exists the opinion according to which the warness measures for accidents and professional illnesses determine the diminuation of the work productivity. To give a viable answer we have to take into account the fact that nowadays classical modalities of raising the efficiency of the economy which have at their basis the raising of the profitability on the expense of the raw materials and of the technologies, have become insufficient. The experts have driven their attention towards the improvement of the activity of organization and the running of the production and work, and also towards the modalities of raising the performances of human resources. So it can be affirmed that the accomplishment of the security and health in work cannot be seen as an activity distinctive from the general activity of the company and from the final aim of this- obtaining the profit. In this way, a method of increasing the application of the time and implicitly of the profit it is given by the diminuation of the interruptions caused by the generation of the work related accidents. 214 Knowledge Based Organization 2008 International Conference
For this, the raw material consumptions, financial and of time addressed to the work protection, must be conducted in a way in which the accomplished benefits should be bigger than the laid-down efforts. What can be done only inasmuch in which the cost of the accidents and professional illnesses can be correctly appreciated.
References [1] A., Dascalescu, The cost of work related accidents, ATLAS publishing house, Bucuresti, 2003. [2] St., Pece, Al. Darabont, The Management of the security and health in work, Agir publishing house, Bucuresti, 2001. [3] St., Pece, Al., Darabont, Work protection (manual for universitary education), Didactic and pedagogical publishing house, Bucuresti, 1996. [4] Dobrota, N. and co-workers, Economic dictionar , Economic publishing house, Bucuresti, 1999. [5] Nicolescu, O. (coord), The guide of the efficient manager, vol. I- II, Technical publishing house, Bucuresti, 1993-1994. [6] Nicolescu, O., Verboncu, I., Management, Economic publishing house, Bucuresti, 1999.
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ECONOMIC EFFECTS OF WORK RELATED ACCIDENTS
Asst. Prof. Eng. Popa Simona, Ph.D, Ec. Rujoiu Elena
Petroleum-Gas Universit of Ploieşti, [email protected] Petrotel Lukoil Ltd., Ploieşti
Abstract Economic consequences of work related accidents and professional illnesses are quantified and represent the basis on how to determine the cost of these events. Work accidents produce economical effects at a microeconomical and also macroeconomical level, in other words they have implications as well in the company where the respectively accidents took place as in the assembly of the national economy. For the beginning the reference it is made regarding the economical effects which are represented by the work related accidents at the level of the company. The company may be seen as a system composed by admittances (financial resources, human materials etc.), the activity of transforming of these admittances in finite products, and leadings out, represented by the results of the production process
Keywords: accidents, time, victim, capital, circulating capital
1. Introduction The first aspect linked with the economical effects of the work related accidents reffers at the admittances in the economic-financial system and also at the work and capital consumption in the way of modifying their structure, their quality and utilization. By interrupting the production process because of a work related accident, may appear a number of consequences upon the “work”factor as it follows:
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¾ The modification of the human capital regarding the employees capacity of producing efficiently goods and services; ¾ The suspension in using the labour or using it in different purposes, apart from those programmed, regarding the victim of the work accident but also the other employees, which constitute a loss of work time. The work time is a common element of the activities evoluted within the society. Irrespective if it is about the public section or the private one, as well as the type of organization of the material production or that of services, the finality of the effected activity within an organization may express itself as a work time consumption. Analysing the work related accidents it is ascertained that these are generating work time losses, because: ¾ the victim is absent for a certain period of time from his/her job; ¾ for a certain period of time the work process is interrupted; ¾ a part of the productive time of the victim’s colleagues is affected for: o Attendances given to the victim at the work place; o The announcement of the executives regarding the respectively accident; o The transport of the victim at the closest sanitary unit; o The preparation of the work place to be able to start again the activity; o The participation of the employees who have been witnesses at the accident, at the investigation of the case. o Current work responsibilities are being interrupted for some persons as it follows: o Accountable employees for the communication of the accident; o The staff which is in charge of hiring a person who has to replace the victim; o The employees who take part in the research commission of the respectively work related accident;
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o Managers who have to take decisions regarding the imposed actions to remove the consequences of the accident in cause; As a work related accident effects upon an employee we can mention the following: ¾ The victim’s professional abilities are diminished in some cases, or may be even integrally lost in other situations, because of the physical problems, respectively invalidity, or because of the lack of experience in the case in which the injured person is forced to change his/her work place; ¾ The health of the affected person is temporary deteriorated in the period of the temporary work incapacity, or even permanent in case of invalidity. The work related accident may have negative influence also upon the professional abilities of the victim’s colleagues, temporary or permanently affecting their capacity of work. To express the economical effects upon the work factor may be used a series of economic indicators as it follows : work productivity, the personnel stability and the dinamic of the effective personnel. In some situations, the work related accidents may be associated also by the partial or total diminuation of the production equipment. In this case it is affected the physical capital composed by goods which are not integrally consumed within a production cycle, but step by step, being replaced after several years of utilization. The effects of the work related accident may be as well qualitative as quantitative. Because the workmachine where the victim was working is unavailable for a certain period of time namely the period in which the victim is in a temporary incapacity of work, or until he/she is replaced by another employee, plus the period of time in which possible repairs are executed in the case of the deterioration of the equipment, the intensity of using the machine is remoted. The work related accidents equally affects also the circulating capital, respectivelly the goods which are integrally consummed within a production cycle namely raw materials, materials, gas, energy, semi-finished products, etc. Exists a series of work related accidents which are generating a partial or total breakage of the raw materials existing at the work place
218 Knowledge Based Organization 2008 International Conference where the accident took place, and also the deterioration of some finite products existing at the place of the accident. Beside this, the company will have to consume materials for drawing of the documents regarding the research of the accident, of the persons’ declarations who have been witnesses at the accident, for the rearrange the work place, and also other consummed materials for hiring replacing persons of the victim. In this way, the economical effects of the work related accidents endorse the modification of the earning performance of the company, in the sense of remoting it, which may lead to an affection of the conditions in which the economic circuit can be reassumed . On the other hand, the economical effects of the work related accidents may be determined also at a macroeconomical level. Exists a series of indicators which express the dynamic of the economy, for example: the salaried population, investments, occupied population at the branch level, internal goods request, agricultural production, commerce etc. Analysing these markers it is observed that the work related accidents have economical effects also at a macroeconomical level, mostly under the following aspects: ¾ The remission of the volume of the occupied population, in the case in which the accidents have as a result invalidity of 1st and 2nd grade or the decease of the person in case; ¾ The change of the structure of the population occupied on branches and training levels, in the situation in which the work related accidents had as consequences permanent incapacity of work or professional reorientation through requalification; ¾ The diminution of the industrial and agricultural production, as well in the situation in which the victim’s work is not recovered through other means, as in the case in which the capacity of the company to resume the activity at the same level is diminished; ¾ The modification of the structure and volume of the elements regarding the external commerce, when the possibilities of exporting are diminished, or production equipment is being imported, raw material, etc. 219 Knowledge Based Organization 2008 International Conference
References [1] A., Dascalescu, Contributions in evaluating the economical dimension of the work related accident phenomena, Doctorate Thesis, University of Petrosani, 2002. [2] St., Pece, A. Dascalescu, Safety and Health in work, Explanatory Dictionary, Genicod publishing house, Bucuresti, 2001. [3] Al., Darabont, The Management of work protection, Hazard and security in work, I.C.S.P.M., Bucuresti, no.3-4, pp. 5, 1994. [4] A., Darabont, S. Nisipeanu, D. Darabont, Security and health auditory in work , AGIR publishing house, Bucuresti, 2002.
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SOME ASPECTS REGARDING STRATEGIC PLANNING, CONSUMER AND HIS BEHAVIOUR IN THE POST-MODERN ERA
Asst. Prof. Puiu Carmen, PhD, Asst. Prof. Stanciu Marieta, PhD, Assoc.Prof. Sîrbu Mirela, PhD
University of Craiova, [email protected]
Abstract Unfortunatly, even in present time, a part of the large enterprises and most of the small enterprises in our country do not have a strategical plan. The strategy is the process setting the direction towards which the firm's efforts to achieve its mission an objectives must turn to. The elaboration of a successful strategy means the correlation of the enterprise's requests with the environment where the activity is hold. For this reason, a profound acknowledgement of the external (a.k.a. opportunities and risks) but also of the internal environment, of the enterprise's weak and strong points must be made. A performant strategy can determine a long term competitive behaviour for the enterprise, bringing up positive changes in the attitude of the participants to the enterprise's activities.
Keywords: strategic planning, objectives, strategic window, SWOT analysis
1. Introduction The strategical planning implies the acknowledgment of all intern and extern factors that can influence the enterprise and can not be replaced only by marketing. In fact, the strategical planning considers clients and marketing opportunities to be between the numerous elements that must be taken into account in order to make the activity of the enterprise profitable. The strategical planning is a managerial process monitoring the development and the permanence of a compatibility between the 221 Knowledge Based Organization 2008 International Conference enterprise and its opportunities on the market and it involves the resources of the entire enterprise. The market strategy must define clearly the enterprise's mission, the strategy of marketing that must be adopted, the production type, the strategy of research-development and other functional activities, as well as the financial funds necessary for the achievement of the enterprise's objectives. The activity of strategical planning starts from the global level and then it develops on vertical line until the level of product. The top management usually defines the enterprise's global strategy but gives to subsidiaries the possibility to establish by themselves the manner in which they will align to it, taking in consideration all the time the enterprise's general objective.
Figure 1: The Strategic Market Planning Process Source: R. W. Haas, Industrial Marketing Management, Third Edition, Kent Publishing Company, Boston, 1986, p. 125.
The global strategy includes not only the external factors and the forces acting upon the enterprise, but also the enterprise's resources – the technological level, the financial resources, the marketing put in practice, the enterprise's position on the market, the personnel's management and training.
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The global strategy is focused on establishing one or more opportunities for the enterprise to use in a profitable way. The objective is to find markets on which the enterprise can obtain a constant competitive advantage, meaning markets on which the enterprise can surpass its competitors ans it can maintain the advantage year after year. Once the organizational strategy is established, the enterprise will define afterwards the specific strategies – the marketing strategy, financial strategy, human resources strategy. These strategies must be as well detailed in action plans. Marketing planning differs from strategic market planning in three ways: (1) strategic market planning focuses on long-term directions and goals, while marketing planning usually involves shorter term horizons, often one year; (2) marketing planning is usually the direct responsibility of the marketing manager, while top management is responsible for strategic market planning; and (3) marketing planning tends to detail line by line budget items and tactical aproaches, while strategic market planning is concerned with the rationale, not the details, used in marketing planning1.
2. The Strategic Planning Process A good strategic plan incorporates four distinguishing features: (1) an external orientation; (2) a process for formulating strategies; (3) methods for analysis of strategic situations and alternatives; and (4) a commitment to action2. The marketing planning is done during a number of stages: (1) setting the primary goal, (2) situation analysis, (3) developing strategy, (4) and implementation and control phase (figure 2).
1 Haas, R.W., Industrial Marketing Management, 3rd Edition, Kent Publishing Co, p.125 2 Evans, J., Berman, B., Marketing, 4th Edition, MacMillan Publishing Co, New York, 1990, p.58 223 Knowledge Based Organization 2008 International Conference
The mission and objectives of the enterprise refers to a long-term commitment to a type of business and a place in the market. It describes the type of activity, in which specific area, to which level of investments, the degree of competitiveness. The right defining of the enterprise's mission has an important role in the achievement of the targeted success. It can be said that represents the “invisible hand” generating the unity of action of all employees in achieving the targeted objectives. The mission of the firm must offer the answer to the following questions: which is the business of our firm? Who are our clients? How will our firm be in the future? How should our firm be in the present? The analysis of the existent situation, of the present market conjuncture is necessary for establishing the enterprise's future line of action. It must be acknowledged in detail not only the internal situation of the enterprise but also the external environment in which it develops the activity. The former performances, the position on the market, the targeted position, the present and potential competition are analyzed. It is also adequate to realize a comparison between the 224 Knowledge Based Organization 2008 International Conference situation of the enterprise and those of its competitors: the marketing policy used, the weak but also the strong points, the actual consumers but also the ones that will be lured from the competition. Each element of the marketing mix “product – price –place – promotion” will be comparatively examined with the situation of the competitors. All these aspects must be correlated with the existent legislation, regulations and limitations imposed by the economic policy. They are considered variables of the marketing audit which can be structured in two parts: the external and the internal audit. The external audit monitors the uncontrollable variables such as business and economic environment, competition and the targeted market (total market, size, characteristics, evolution tendencies of the market etc.). The internal audit surveys the operational variables of the marketing, analyzing the situation of the specific enterprise: sales (total ones or depending on criteria such as geographical area, client, product, the way of selling – rates, leasing, cash etc.); market shares; profit costs and marje; marketing information and researches; marketing mix: product, price, distribution, promotion – operations and resources needed. The marketing audit must be done not only for identifying a problem with which the enterprise is confronting but it is also recommended to be used at the beginning of each planning cycle. The results of marketing audit should take the shape of the SWOT analysis. These characteristic analyses and studies represent the base for the elaboration of the marketing strategical decision. The marketing decision is defined by a large diversity and complexity, due also to the fact that marketing information is quite limited and hard to get. It is essential for any enterprise to gather sufficient information before, during and after taking and implementing the marketing decisions. An correct informing process at the right moment permits the correct evaluation of strong points, weaknesses, opportunities and threats; the accurate management of the marketing environment and the maximizing of the performances. The comprehension of the internal and external situation allows the observation of the opportunities that can be possibly capitalize by the strategy chosen. But how can the enterprise discover the most 225 Knowledge Based Organization 2008 International Conference favorable opportunities? The best way is to identify that product/ service offering the best compatibility between the opportunities discovered by the enterprise on the market and the enterprise's available or easy to procure resources in order to capitalize profitably these opportunities. Of course, this does not mean creating an ideal, theoretical situation but choosing a product and/or service for each a real demand exists on the market. The most difficult part is to establish the balance between possibilities and opportunities, which can bring significant damages to the enterprise if they are not combined carefully. Marketers even use the term strategic window3 for explaining the very limited period of time in which the market's opportunities match the enterprise's possibilities. If the decision to develop a strategy on one or more of these target markets is taken, the set of afferent objectives must be established. These objectives must not only be realistic but also consistent enough and able to be measured. The objectives vary depending on the enterprise's orientation and they might refer to: • the volume of sales - depending on product, market, consumers, time periods; • the market share hold and the predictions on the penetration of potential markets; • objectives regarding research-development and the extension of product types; • the degree of profitability, the period of recuperating the investments (depending on product, geographical areas, market segments, time periods); • the involvement in the social life and other ecological objectives; • the enterprise's image. In order to achieve all these points, it is understandable that must be applied more than one marketing strategy good for all the situations emerging on the market. The important departments of the enterprise will develop their own strategical plans that must be compatible with
3 D.F.Abell, Strategic windows, în volumul Marketing Management And Strategy- A Reader, Edited by Ph.Kotler, K.Cox, 3rd Edition, Prentice Hall-Inc, New Jersey, 1984, p.72. 226 Knowledge Based Organization 2008 International Conference the global strategy, making sure that all the enterprise's resources are directed towards the achievement of its mission. The marketing strategy will be presented in detail for a product or a certain market, containing all the necessary information for the achievement of the targeted objectives. The most important decision regarding the launching of the strategy is the one referring to the marketing mix. The mix is that optimum combination product - price - distribution - promotion appropriate for the target markets selected. The quality of the mix depends on the manner in which the other stages were got over. This stage is very complex and means the defining of the product strategy, price strategy, distribution strategy and promotion strategy: - the product strategy is based on the element around which the entire mix develops - the product and it refers to aspects such as: news in the line of products, tendencies of development or restriction of the product range, quality, the degree of innovation promoted by the enterprise and, not at last, the post – sale services and technical assistance; - the price strategy helps in taking the right decisions about the list of prices, the discounts to these prices, special agreements, credit facilities and conditions offered to clients, the price/quality report; - the distribution strategy establishes the most efficient distribution channels bringing the product closer to the target markets, meaning the targeted categories of consumers, the policy in report to the other members of the distribution channel, what functions of the distribution can be given to the partners; - the promotion strategy has to create a very favorable image for the product on the target market, trying to influence the buying decision of the consumers by a right combination of sale forces, advertising and promotional sales. At last, enterprise’s performance is evaluated by monitoring results. Monitoring results involves measure results and compare with plans to identify deviations; evaluate and correct negative deviations; and move to exploit positive ones. A performant strategy can determine a long term competitive behaviour for the enterprise, 227 Knowledge Based Organization 2008 International Conference bringing up positive changes in the attitude of the participants to the enterprise's activities.
References [1] Abell, D.F., Strategic windows, in the volume Marketing Management And Strategy- A Reader, Edited by Ph.Kotler, K.Cox, 3rd Edition, Prentice Hall-Inc, New Jersey, 1984. [2] Evans, J., Berman, B., Marketing, 4th Edition, MacMillan Publishing Company, New York, 1990. [3] R. W. Haas, Industrial Marketing Management, Third Edition, Kent Publishing Company, Boston, 1986. [4] McDonald, M., Marketing strategic, Editura Codecs,1998. [5] Pop, N. Al.(coordonator), Marketing strategic, Editura Economică, Bucureşti, 2000. [6] Puiu, C., Elemente de marketing, Editura Aius PrintEd, Craiova, 2007. [7] Stăncioiu, A.F., Strategii de marketing în turism, Editura Economică, Bucureşti, 2000.
228 Knowledge Based Organization 2008 International Conference
ELECTRONIC BANKING SERVICES AND RISK MANAGEMENT PRINCIPLES IN THE SOCIETY BASED ON KNOWLEDGE
Asst. Prof. Romanescu Marcel Laurenţiu, PhD
“Constantin Brâncuşi” University, Târgu.-Jiu, [email protected]
Abstract The term "electronic banking" or "e-banking" covers both computer and telephone banking. Using computer banking, a charity’s computer either dials directly into its bank's computer or gains access to the bank’s computer over the internet. Using telephone banking, the charity controls its bank accounts by giving the bank instructions over the telephone. Both computer and telephone banking involve the use of passwords which give access to the charity’s accounts.
Keywords: e-banking risks, traditional banking risks, operational risk, strategic risk
Technological innovation and competition among existing banking organizations have allowed a wider array of banking products and services to become accessible and delivered through the Internet. The rapid development of e-banking capabilities carries risks as well as benefits. The bankers are to recognize, address and manage banking institutions in a prudent manner according to the fundamental characteristics and challenges of e-banking services. Using these methods, banking transactions can be actioned 24 hours a day. Computer banking allows a charity, for instance, to view recent transactions, print out statements and transfer funds between accounts and make payments. 229 Knowledge Based Organization 2008 International Conference
Many banks also have the facility for a charity to set up, amend or cancel standing orders. Electronic banking also allows payments to be made to the charity, i.e. acceptance of credit card donations. Most charities that use electronic banking will also continue to use some of the elements of more traditional methods of banking, such as a chequebook. Electronic banking services differ between the different banks and building societies. If trustees decide that they want to use electronic banking then they should shop around for the most suitable package for their charity. The Basel Committee on Banking Supervision expects such risks to be recognised, addressed and managed by banking institutions in a prudent manner according to the fundamental characteristics and challenges of e-banking services. These characteristics include the unprecedented speed of change related to technological and customer service innovation, the ubiquitous and global nature of open electronic networks, the integration of e-banking applications with legacy computer systems and the increasing dependence of banks on third parties that provide the necessary information technology. While not creating inherently new risks, the Committee noted that these characteristics increased and modified some of the traditional risks associated with banking activities, in particular strategic, operational, legal and reputational risks, thereby influencing the overall risk profile of banking. Based on these conclusions, the Committee considers that while existing risk management principles remain applicable to e-banking activities, such principles must be tailored, adapted and, in some cases, expanded to address the specific risk management challenges created by the characteristics of e-banking activities. To this end, the Committee believes that it is incumbent upon the Boards of Directors and banks' senior management to take steps to ensure that their institutions have reviewed and modified where necessary their existing risk management policies and processes to cover their current or planned e-banking activities. The Committee also believes that the integration of e-banking applications with legacy systems implies an integrated risk management approach for all banking activities of a banking institution. 230 Knowledge Based Organization 2008 International Conference
To facilitate these developments, the Committee has identified fourteen Risk Management Principles for Electronic Banking to help banking institutions expand their existing risk oversight policies and processes to cover their e-banking activities. These Risk Management Principles are not put forth as absolute requirements or even "best practice." The Committee believes that setting detailed risk management requirements in the area of e- banking might be counter-productive, if only because these would be likely to become rapidly outdated because of the speed of change related to technological and customer service innovation. The Committee has therefore preferred to express supervisory expectations and guidance in the form of Risk Management Principles in order to promote safety and soundness for e-banking activities, while preserving the necessary flexibility in implementation that derives in part from the speed of change in this area. Further, the Committee recognises that each bank's risk profile is different and requires a tailored risk mitigation approach appropriate for the scale of the e- banking operations, the materiality of the risks present, and the willingness and ability of the institution to manage these risks. This implies that a "one size fits all" approach to e-banking risk management issues may not be appropriate. For a similar reason, the Risk Management Principles issued by the Committee do not attempt to set specific technical solutions or standards relating to e-banking. Technical solutions are to be addressed by institutions and standard setting bodies as technology evolves. However, this Report contains appendices that list some examples current and widespread risk mitigation practices in the e- banking area that are supportive of the Risk Management Principles. Consequently, the Risk Management Principles and sound practices identified in this Report are expected to be used as tools by national supervisors and implemented with adaptations to reflect specific national requirements and individual risk profiles where necessary. In some areas, the Principles have been expressed by the Committee or by national supervisors in previous bank supervisory guidance. However, some issues, such as the management of outsourcing relationships, security controls and legal and reputational risk management, warrant more detailed principles than those 231 Knowledge Based Organization 2008 International Conference expressed to date due to the unique characteristics and implications of the Internet distribution channel. The Risk Management Principles fall into three broad, and often overlapping, categories of issues that are grouped to provide clarity: Board and Management Oversight; Security Controls; and Legal and Reputational Risk Management. Because the Board of Directors and senior management are responsible for developing the institution's business strategy and establishing an effective management oversight over risks, they are expected to take an explicit, informed and documented strategic decision as to whether and how the bank is to provide e-banking services. The initial decision should include the specific accountabilities, policies and controls to address risks, including those arising in a cross-border context. Effective management oversight is expected to encompass the review and approval of the key aspects of the bank's security control process, such as the development and maintenance of a security control infrastructure that properly safeguards e-banking systems and data from both internal and external threats. It also should include a comprehensive process for managing risks associated with increased complexity of and increasing reliance on outsourcing relationships and third-party dependencies to perform critical e-banking functions. While the Board of Directors has the responsibility for ensuring that appropriate security control processes are in place for e-banking, the substance of these processes needs special management attention because of the enhanced security challenges posed by e-banking. This should include establishing appropriate authorisation privileges and authentication measures, logical and physical access controls, adequate infrastructure security to maintain appropriate boundaries and restrictions on both internal and external user activities and data integrity of transactions, records and information. In addition, the existence of clear audit trails for all e-banking transactions should be ensured and measures to preserve confidentiality of key e-banking information should be appropriate with the sensitivity of such information. Although customer protection and privacy regulations vary from jurisdiction to jurisdiction, banks generally have a clear responsibility 232 Knowledge Based Organization 2008 International Conference to provide their customers with a level of comfort regarding information disclosures, protection of customer data and business availability that approaches the level they can expect when using traditional banking distribution channels. To minimise legal and reputational risk associated with e-banking activities conducted both domestically and cross-border, banks should make adequate disclosure of information on their web sites and take appropriate measures to ensure adherence to customer privacy requirements applicable in the jurisdictions to which the bank is providing e-banking services. To protect banks against business, legal and reputation risk, e- banking services must be delivered on a consistent and timely basis in accordance with high customer expectations for constant and rapid availability and potentially high transaction demand. The bank must have the ability to deliver e-banking services to all end-users and be able to maintain such availability in all circumstances. Effective incident response mechanisms are also critical to minimise operational, legal and reputational risks arising from unexpected events, including internal and external attacks, that may affect the provision of e-banking systems and services. To meet customers' expectations, banks should therefore have effective capacity, business continuity and contingency planning. Banks should also develop appropriate incident response plans, including communication strategies, that ensure business continuity, control reputation risk and limit liability associated with disruptions in their e-banking services. With changing bank technology more and more charities are likely to consider moving away from paper based banking methods; many charities have already done so. Broadly speaking our view is that the trustees of a charity will be justified in deciding to use electronic banking if: they can identify overall advantages for the charity in doing so; they put in place adequate financial controls; and they have, or can acquire, the necessary legal power. It is important that any decision to adopt electronic banking be made with the benefits and advantages to the charity in mind. It is not right to move to electronic banking just because it seems fashionable or because the charity’s bank wants it to change (the motive for this might be to help the bank to reduce its own costs, rather than to provide a better service for the charity). 233 Knowledge Based Organization 2008 International Conference
With electronic banking we would expect the same level of internal financial controls as we would with the more traditional forms of banking. There should continue to be clear segregation of duties to prevent any single person from being able to control substantial resources or obtaining unauthorised access to information; and there should be proper approval at, or delegated from, trustee level for movements and payments from bank accounts. Further advice on internal financial controls can be found in our publication
Tabel 2: Advantages and potential difficulties of electronic banking
Advantages of electronic banking Potential difficulties of electronic banking For trustees who give their own Unless the charity already time to charities it means that they can owns computer equipment there carry out charity banking out of will be an initial financial outlay working hours in the evenings and at to establish computer banking. weekends. Trustees are able to carry To use telephone banking out transactions 24 hours a day, 7 days there is the cost of the telephone a week and will no longer be restricted call to the bank, although these to bank opening hours. are usually charged at a local rate. Trustees can instantly see what is For charities that have more happening with the charity’s money than a basic computer banking rather than waiting for statements to be service there may be a charge for sent. the services of the bank. There is no time spent queuing or Computer banking requires journey time to travel to and from the some personal computer skills bank for trustees or employees of the although banks and building charity. societies are making efforts to It might be especially useful to make their software as "user charities that have branches. friendly" as they can. A charity may have used the same banking systems for many years and find a new arrangement initially more complicated to understand and operate.
Electronic banking services are used increasingly by small and large organisations all over the world. Organisations and banks have a
234 Knowledge Based Organization 2008 International Conference vested interest in making sure that electronic banking is as secure as possible. Banks have a password system for both computer and telephone banking. With telephone banking all telephone calls are recorded, so checks can be made if there are queries about a transaction. Care has to be taken by a charity to ensure that only trusted people have access to the passwords. Systems can operate hierarchical passwords so that some people are given "read only" access (i.e. the ability to read information but not to change it or add to it), while others may be able to suggest changes which then need to be activated by a supervisor. Some banks or building societies will offer arrangements where two or more people each have to enter their own password or personal number before transactions are effected. Some banks allow larger organisations to purchase a plastic card reader: when a payment or transfer has to be made each official can swipe their card (connected to their PC) and then enter a personal number to release the payment. In this way, one official cannot effect a transaction without other officials being made aware of it and being required to authorise it. Some banks have plans to bring in systems that involve electronic signatures or other advanced identification systems. Whatever arrangements a charity uses, the trustees should prevent any one individual from being able to control significant resources. A bank will usually ask a charity or its trustees to give the bank an indemnity before it agrees to provide an electronic banking service. The indemnity will typically say that the charity or its trustees agree to cover the bank for all costs and losses it sustains arising from use of the electronic banking facility (except where the costs or losses have come about because of the bank’s own error or negligence). We recognise that most banks or building societies will not offer electronic banking to a charity unless the charity or its trustees agree to give this type of indemnity. However, charity trustees need to give careful consideration as to whether or not to give such an indemnity. The reason why the banks seek an indemnity is because the risks of misuse of the account are greater in the case of electronic banking than in the case of conventional banking. The indemnity will have the effect of relieving 235 Knowledge Based Organization 2008 International Conference the bank from responsibilities to which it would have been subject had the account been a conventionally operated trust account. Under conventional banking arrangements, a bank would have to make good a loss to the charity if it debited the charity’s account on the basis of a cheque or other written instruction which had been forged - unless the bank could show that the trustees had, by their negligence, facilitated the forgery. In electronic banking arrangements, the effect of the indemnity would be that the bank would only have to make good a loss caused by an unauthorized instruction if the trustees could show that the bank had been negligent. Whilst under conventional banking arrangements a bank can be liable to make good a loss to a charity’s account if it gives effect to an instruction from the trustees which it knows or should have known involved a breach of trust, under electronic banking arrangements the indemnity would relieve the bank of this sort of responsibility. No system of controls, however elaborate, can guarantee that a charity will be totally protected against abuse. Trustees often express concern about the extent of their personal liability in the event of any loss to the charity through misappropriation or misapplication of funds. Having sufficiently rigorous controls provides not only the protection for the charity property but also the best defence against a charge of failing to protect the charity’s funds and thereby being in breach of trust. If funds are lost through trustees neglecting their duty of care they could be held personally liable to repay to the charity the funds lost. However, reasonable internal financial controls will reduce the risks associated with electronic banking and hence the risk of a claim being made under an indemnity.
References [1] Basno, C., Dardac N., Management Bancar, Editura Economicǎ, Bucureşti, 2002. [2] Basel Committee on Banking Supervision, Consultative Document - Operational Risk, mai 2001. [3] Butler, C., Mastering Value at Risk, Editura Financial Times Pitman Publishing, Londra, 1999. [4] Chapman C., Ward S., Project risk management. Processes, Techniques and Insights; Editura Wiley & Sons, Anglia, 1997. 236 Knowledge Based Organization 2008 International Conference
[5] Niţu, I., Managementul riscului bancar, Editura Expert, Bucureşti 2000. [6] Trufaşu, M. C., Constantinescu G. C., Securizare e-banking şi metode de securizare a transferului electronic de date într-un sistem bancar, Revista de Informatică Economică ASE Bucureşti, 2004. [7] www.bnro.ro [8] www.ghiseulbancar.ro/articole/7/5705/Studiu_privind_serviciile_de_e- banking.htm
237 Knowledge Based Organization 2008 International Conference
CONSUMER AND HIS BEHAVIOUR IN THE POST- MODERN ERA
Asst. Prof. Stanciu Marieta, PhD, Asst.Prof. Puiu Carmen, PhD
University of Craiova, [email protected]
Abstract The process of passing to the market economy contained besides some pre- modern elements, numerous post-modern aspects. This has kept is pre-modern sense, of returning or restoration and that is why they are called by Habermans ‘recovering revolutions’. Accepting inequalities in society is a first post-modern element of transition to market economy. Bauman Zygmunt thinks that the transition to market economy marked the replacement of illuminist ideal on total knowledge with postmodernist ideal of choice obsession after its own variant1.
Keywords: modernism, postmodernism, consumer, market economy
Modernism, expresses the conscience of an époque that rapports itself to the traditional one, in order to signify the transition from old to new, characterizing itself through secularization, rationality, urbanizing. Modernism crisis manifested itself, according to many authors at the end of the 50’s and beginning of the 60’s2. Modernism is worn with paradoxes3. The upsurge of industrialization impoverishes the planet of soil abundance, air, water and soil pollution and in a fully entropic marsh, the destruction of woods deteriorates the balance of fauna, flora and climate. Creation of
1 Bauman Zygmunt- ‘Imitations of Postmodernity’, Routledge, 1992 2 Smith A.D.- Towards a Global Culture, ed. Featherstore M, 1990 3 Gershuny J.-After Industrial Society. The Emerging self- Service Economy Macmillan, London 1978 238 Knowledge Based Organization 2008 International Conference products enriches the market, on the surface, but in reality consumes irreversibly the resources. In his turn, the consumer is on one hand proclaimed ‘king’, and on the other hand he is treated as a manageable mass of advertising in a scientific way. Still, the man wants to be the actor of his life, but the same thing is wanted by the group from which he is part of. Alain Tourraine thinks that modernism broke in four segments, distributed in the four cardinal point of social life: erotic consume against social and modernizing normativity; increasing nationalism despite the universality of market and money; concentrating industrial and banker capitals, forces that rule industrial society and affirming the conquest and power apparition with all opposed recommendations of managerial sciences; increasing the doctrines of individual purchase that elude the social control because they are no longer bound to social roles or specific positions of consumers. This way, the model that identifies modernism with the triumph of rationality was decomposed4. Postmodernism was born from the contestation of modernism, from the need to open new horizons and detaching of time and space, from individualism affirmation and liberating the human autonomy, strengthened by geographical and social mobility. Postmodernism follows modernism, appears after the Second World War and intensifies at the end of the 60’s being a king of emotional experiences dominated by the ephemeral, resentment, anger, alienation, anxiety, poverty, racism, sexism. It is nothing else than a cultural logic of late capitalism. Postmodernist solution is modular introduction of variants and varieties of products, because electronic and informational technology allows shorter series of fabrication, without sacrificing economies on large scale that result from small costs on product unit. The postmodern consumer wants to get out of the daily routine, he is egocentric and less influenced by the dictate of fashion. Often, he is less the subject of social conformations or national customs, but other times, he is the lover of eclectic styles, coming from different
4 Tourraine A.-Critique de la modernite, Fayard, Paris, 1992 239 Knowledge Based Organization 2008 International Conference ethnic traditions. This ecletism can be extended from clothes to arranging the house and constructing a new way of life. While the consumer from modern époque has stability, in the sense that his lifestyle could have been identified and become a typology, modern consumer is more volatile. In the postmodern era, people are not faithful and consequent compared to other types of pre-established purchasers. This inconsequence comes from the fact that in postmodernism consumers are no longer interested in the materiality of objects and in new experiences that they could have with the help of their purchases. There are also negative parts in this feverishness of experience: tobaccos, alcoholism, and drug consume. But, in all manifestations of this tendency of intensifying life experiences, the saturation of consumers regarding materiality created by industrial revolution is obvious5. Therefore, in postmodernism it is manifested and appears the importance of goods traveling from solid substance of industrial economic products to the intangibility of information and services. The third millennium is going to be a millennium of profound transformations that can offer hierarchies’ turning over, the transition to a human society that combines economic priorities with ecologic ones, or the creation of an enclave of richness in a poor majority. So, the creation of intern requests of postmodern requests is an important condition for the realization of extern competition of products and services and implicitly for integration in an global worldwide economy. In nowadays, in Romania are already registered mutations to a postmodern consume. This is because, it is a fact that, while element consume that constitute a social status is deeply rooted in Romanian’s behaviour, style (that is a postmodern element according to some EWDEN specialists) is a way of recognizing someone in terms of social status or social class. Romanian’s aspirations related to social status are in this way meeting with the opportunity given by the shop to the individual of realizing different identifications.
5 Demetrescu M.C.: Postmodernism physiognomy of marketing’, the magazine Marketing- management, no.1,2,3,/1998, pag 11-17 240 Knowledge Based Organization 2008 International Conference
Today, in postmodernism or the entertainment society, as Rob Schilds calls it, stores become “power micro spheres’. The power of store attraction relays in space organization, which is in fact an allocation of fantasy and pleasure. The store is not only a place where merchandises are bought, but also a place where simulations take place that give to commercial reality the print of a fairytale (dream- life order). Typically postmodern stores have a spatial form that synthesis attributes of spending spare time. Shopping is made under the form of a show, because the store invites to interpretations. The consumer can ‘consume’ without spending anything, he only walks. If in the modernist époque people went shopping only for certain purchases, in postmodern shops people spend a part of the free time, walking without a purpose or hurry. The buildings of the stores are often renovated, in order to host new combinations between different forms of spending the spare time, that is part of the offer of products that are being sold and trade itself. So, commercial places adopt festive carnival aspects, of spending spare time. Music is designed to impregnate the rhythm of commercial activities: in some corners it is played louder and watching is discouraged, and in others it invites clients to search shopping alternatives. Therefore, the purchaser found himself in a postmodern store like in a museum, which reunites, in a controlled way, different show elements. This is adequate for Romanian cultural values. Even the more disadvantaged, lacking material possibilities, could ‘consume’ with pleasure from luxury environment, with air conditioner, even if just by observing and free window-shopping walking. These are services that concern spending spare time, offered by the store to consumers with the purpose of getting closer to their needs. The Entrance of Postmodern Values in Romania When we speak about Romania’s opening to the West or of emulation of values from advanced capitalist societies in individual consume, arguments relayed on the fact that developed countries have a decisive power in worldwide economy and have the capacity of
241 Knowledge Based Organization 2008 International Conference imposing their consume vales6. The thesis of consume value convergence derives from modernity theory; to sustain this theory means to contradict dependence theory. From modernization theory is derives the recent theory itself of postmodernism. In Romania case, critics regarding the theory of modernization/post modernization are of particular order, today, the desire of integrating this country in global worldwide economy confronts to a weak introduction of market elements and with a strong position of state sector in economy. Going inside postmodern values, in Romania, is hindered by a few elements like: ¾ The globalization of western consume behaviour to the East does not mean an’ homogenization’ but of generalizing the diversity of acquisitions, ¾ The slow and contradictory rhythm of Romania modernization, today, its position in worldwide economy being a periphery one while consume globalization in practically unconceivable to realizing extern competition of merchandises and services. ¾ Globalization of postmodern values in Romania’s consume faces the resistance of rural traditional values. The convergence of Romania’s economy to that of the European Union seems to be a problem of the future, placed form the time being by those that plead it, when in the sphere of necessity, when in the pathetic aspiration of the East to the West. This convergence means that it already exists (predominates) a Romanian request of postmodern consume. In other words, a ‘ harmonization’ of technical Romanian norms with occidental ones would mean in present competition conditions, an imitation in an obligatory sense and not understanding the structural-organic character of transformations on products and services level. ¾ Integrating modernism values in Romania was produced more rapidly on cultural level than on the socio-economic one, in contrast with what happened in West, where the gap is in favor of
6 6 Vanier A.- The Supply of Consumable Goods. Structural Evolutions and Modifications”, the magazine Marketing-management, no.6/1999 242 Knowledge Based Organization 2008 International Conference technology. We cannot speak about a generalization of postmodern values in Romania, in the sense of their predominance over other values, without noticing the multiple forces of resistance as well as the coexistence on this territory of certain cultural influences. Moreover, many times it is suggested the idea that Romanian nation has a culture full of vitality, that is in a contrast with the occidental one – a-historic technicistic, neuter affective. In addition, Romanian values are joined by an important dose of subjectivity, associated to nationalism, socialist favoritism and Balkan relativism. In nowadays, it appears as necessary connecting Romanian economy to international production networks and fastening economic reconstruction through financial, technologic and managerial support. Favorable institutional environment has the capacity to generate a postmodern consume request, but also a main way of getting through postmodern consume values in Romania. Another favorable element for promoting postmodern values in Romania is the increase of intern service offer7. Service imports amplify the offer of postmodern values on Romanian market. Although it does not have extraordinary proportions, increasing service offer, still, marques some relevant changes in Romanians consume behaviour. Still, an important way in which postmodern values penetrate in Romania, is electronic trade (on-line trade)8. In nowadays, electronic trade is a tempting and frequently used expression. Electronic trade refers to the form of trade that takes place on the internet, usually by the visitation of the consumer on the own site of the seller and realizing a transaction right there. Electronic trade can be perceived as being useful to the consumer’s freedom of movement who, without moving, can buy everything, at the price that is convenient for him, no matter where he is. In the eyes of the entrepreneur, he appeared as a door to worldwide market. The advantages of electronic trade are known by many of the on- line traders, not knowing that now there are still unfit products or that can not be the object of internet selling.
7 Ghibutiu A.- “Conditions for Romania’s integration in worldwide and European structures’, the magazine Economic Tribune, no.34/2000, pg.67-68 8 Dumitrascu R.- ‘On-line Trade’ – the magazine Economic Tribune, no.3/2001, pg. 48-49 243 Knowledge Based Organization 2008 International Conference
Once the electronic trade is being developed, used more and more for supplying products and services, it is offered an unique occasion of tying at a relatively low cost, almost 18 million European companies to worldwide market9. Communication, by multiplying the emissaries of messages becomes a powerful promotion source of postmodern values in Romania. Through communication they could launch, in this way, products, services, tastes and attitudes can be modified, or they can structure opinions that are quickly send with a strong impact on a more and more big population. In fact, in nowadays, the promotional message is conceived so that it can rapidly integrate on any market and to ensure the free choice of the consumer. Protecting the environment and a favorable attitude towards pollution phenomenon is a new way of postmodern values penetration. The quality of life must become the reference indicator for Romania’s economy, so, by rational use of resources and protection of the environment it must be insured ‘the ecological capital’ for the new generations that will come. As a consequence, standardization becomes a way of postmodern values in Romania.Due to the fact that Romania has a very little percent in international trade, that investments in research and development are increasingly less, that it is a net importer of technologies and products, it must adopt a standardization policy based on taking European and international standards, not being able to create pure national standards. Compared to countries with a very developed economy, Romania must go for harmonizing national standards with European or international ones. Using European or international standards is a vital interest for imports as well as exports of Romania, either products or services. By imposing these standards, Romania’s economy is obligated to increase the quality of services and products, meaning the increase of industry competition. Romania’s capacity to influence European or international standards is relatively reduced. Anyway, this depends, in the first place on the desire of the private or state sector to align or
9 Comănescu M.- European Management, Economic Editure , 1999 244 Knowledge Based Organization 2008 International Conference accept the quality level (standardization) imposed by the European Union or worldwide economy. So, the standardization strategy of Romania must keep in mind markets globalization, a strong connection with the European Union’s market is highly important for Romanian economy. In order to create Romania’s strategy concerning standardization, all problems that this activity faces, must be identified, approached and forecasted. Globalization, rapid technological changes, trade agreements and the importance of European and international activities of standardization make a big pressure on national standardization. These pressures are accentuated by limited resources that the government offers as well as insufficient implication of the private sector. In conclusion, the ways in which postmodern values can penetrate in Romania are tight to the tendency of globalization and integration of the economy. It all starts from here and it reports here. The process needs, as essential components the extension of production internationalization and of markets in a worldwide economy and simultaneous the extension of Trans nationalization of global type.
References [1] Bauman Zygmunt- Imitations of Postmodernity, Routledge, 1992 [2] Comănescu M.- European Management, Economic Editure , 1999 [3] Demetrescu M.C.- Journal of Marketing-Management , no.1,2,3,/1998, pag 11-17 [4] Dumitrascu R. - Economic Tribune, no.3/2001, pg. 48-49 [5] Gershuny J.-After Industrial Society. The Emerging self- Service Economy, Macmillan, London 1978 [6] Ghibutiu A.- Economic Tribune, no.34/2000, pg.67-68 [7] Smith A.D.- Towards a Global Culture, ed. Featherstore M, 1990 [8] Tourraine A.-Critique de la modernite, Fayard, Paris, 1992 [9] Vanier A.- Marketing-management, no.6/1999
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E-DEFENCE - INSTRUMENT FOR MILITARY CAPABILITIES OPTIMIZING
Asst. Prof. Pârvuţ Valentin
“Nicolae Bălcescu” Land Forces Academy, Sibiu
Abstract In terms of the acquisition strategies for the PPBES imposed defence, we may assess that the information on electronic commerce Business to Business (B-B) are developed by means o the newspaper, economic magazines or television. Most of the information focuses on electronic acquisition (e- procurement) or on the electronic commerce as the analysts confirmed that the firms have which implemented the electronic acquisition systems have developed certain savings. The electronic commerce represents the business information exchange, without Data Electronic Interchange, e- mail, electronic Funds transfer, as well as other similar technologies. The electronic data exchange represents the PC, the information exchange on the business transaction, thus using a public standard format.
Keywords: Military Capability, E-Defence- Instrument, Electronic acquisition
When defining this concept, we have to take into account the e- business notions, as well as the e-economy ones and e-commerce, which are familiar and consecrated terms. E-business represents a new means to lead business, by means of the electronic interconnection and of the new values of the organization. E- Defence, compared to e-business, defines the military business interconnecting, the new revolution of the military affairs. By mans of
246 Knowledge Based Organization 2008 International Conference the military affairs we understand any activity within military organization that supports its specific goals. The informational society is a society based on the information priority using; this is a part of the information society use to gather stock or process the information, the information technology and IT&C communication (Information Technology and Communication). The knowledge society is more than an informational society or an information society, thus referring to both. The military organization – compared to the e-Defence dimension- must adopt the fundamental architectures, in order to develop its own infra-structure and specific applications, without justifying the investments for every initiative to increase the system value. E-Defence features three key concepts: • Information and communication technology using; • Defence acquisition strategies; • Information war security strategies; In terms of the acquisition strategies for the PPBES imposed defence, we may assess that the information on electronic commerce Business to Business (B-B) are developed by means o the newspaper, economic magazines or television. Most of the information focuses on electronic acquisition (e-procurement) or on the electronic commerce as the analysts confirmed that the firms have which implemented the electronic acquisition systems have developed certain savings. The electronic commerce represents the business information exchange, without Data Electronic Interchange, e- mail, electronic Funds transfer, as well as other similar technologies. The electronic data exchange represents the PC, the information exchange on the business transaction, thus using a public standard format. The introducing of the e-business allows the military organizations to use the electronic comer e not only in the traditional acquisition, but also in the standard transactions. This concept allows us to take into account the relationship between the consumer and the provider and provides the data advantages to significantly improve this process. This leads to extending the functional applications from
247 Knowledge Based Organization 2008 International Conference providing, acquisition accountability to the ones from other fields, such as health, personnel, acquisition system, science and technology. The military organization politics in terms of the e-business and e-commerce concepts must take into account: • E-business and e-commerce technologies and concepts using in order to improve the business process; this allows the introducing of the commercial market processes in the electronic information dissemination, in order to reduce the process duration; therefore, the military organization develop the following activities: ◊ E-business and e-commerce initiative implementing, which benefits from “the best practice in business”, in order to obtain efficient and operational processes to significantly reduce the answer times; ◊ facilitating the business process data and processes among military organizations and business partners; ◊ implementing flexible and interoperable solutions that do not forbid or slow down the technologic solutions or the competitive ones; ◊ E-business and e-commerce standards using and the COTS (commercial off the shelf) products; ◊ implementing the security solutions for E-business and e-commerce to allow the data and the users’ security; • Setting and using the electronic business opportunities to hire principles, concepts and E-business and e-commerce technologies in leading and administrating the business military processes; • E-business and e-commerce applying in order to set the interoperability with the business partners for the private sector integration; • Cooperation with other Ministries and agents to develop and implement the E-business and e-commerce operational architecture to support the governmental programmes; • Providing the acquisition policy with MoD and other acquisition stipulations;
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The restructuring process and the Romanian Army’s modernizing one is similarly developed with the action capacity perfecting, which allows the approaching of the new stages aiming at the interoperability accomplishing with the military structures of the NATO member states. The E-business and e-commerce specific solution development aims at reaching the following goals: • The short term ones (2005-2010) ◊ Information process accelerating, as a restructuring support and compensating factor to reduce the personnel and resource expenses; ◊ Concept issuing on the Defence National Information Network, in order to provide the Central Public Administration and Euro Atlantic structures interoperability; ◊ Issuing the military modelling – simulating field and the premises to intensively use them within decision assistance, forces’ training and peace maintaining missions, crises management, and civilian emergencies, etc.
References [1] Bujoreanu, I., Financial Management Mini Case Study, chapt.10, Economic and Financial. [2] Clauss, F.J., Applied Management Science and Spreadsheet Modeling, Duxbury Press Publishing House, 1996. [3] Constantinescu, M., Unit Cost Budgeting, chapt.19, CRMRA Publishing House, Brasov, 2001. [4] Romanian Constitution, Biblifor Plus Publishing House, Bucuresti, 2003 [5] Defence Acquisition Deakbook, version 3.2 [6] Defence planning directive nr. 04/2003-2007, Bucuresti, 2003 [7] Davis, T., Changing the Pentagon’s Planning, Programming and Budgeting System, New York, 2004. [8] Doval, E., Analiza eficacitate – cost, chapt.2, CRMRA Publishing House, Brasov, 2001. [9] EPOCC 2.0
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[10] Ireson, W., Handbook of Reliability Engineering and Management, Second Edition, McGraw Publishing House, Washington, United States of America. [11] Fisher, G.H., Cost Considerations in System Analysis, Santa Monica, California, 1997. [12] FM 770-78 Land Forces Handbook, Washington DC, April, 2003. [13] Holub, R., Vintr, Z., Optimization of Dependability Requirements from Life Cycle Cost Point of View. Proceedings of 1988, FISITA- World Automotive Congress. Paris: Society of Automotive Engineers, 1998. [14] Hughes, W., Military Modeling for Decision Making Military Operations, Alexandria, 2003. [15] Langfort, J.W., Logistics – Principles and Applications, McGraw Publishing House, New York, 1995. [16] Levine, D.M., Berenson, M.L., Stephan, D., Statistic for Managers Using Microsoft Excel, Practice Hall Publishing House, 1998. [17] Lightsey, R., Technical Performance Measurement, McGraw Publishing House, New York, 2003.
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SOME ASPECTS OF THE EVOLUTION IN PERSPECTIVE OF SOME FIELDS OF ECONOMICS IN DISTRICT GORJ
Asst. Prof. Văduva Cecilia–Elena, PhD
“Constantin Brâncuşi” University, Târgu.-Jiu, [email protected]
Abstract: Main strategic objectives established by D.G.F.P. Gorj for the year 2008 refers to the profound reform of fiscal administration in the sense of increasing the capacity of fiscal administration, increasing the degree of gathering levies, taxes, contributions at the consolidated general budget, intensification of actions of recovery of the debts of taxpayers by application of all measures mentioned in Penal Code of Fiscal Procedure, fighting against fiscal evasion by sanctioning it according to law and at the same time by cooperation with community of business persons and application of an equitable treatment of all taxpayers.
Keywords: economics, aspects, district Gorj
Industrial politics represents the strategic objective of the industrial politics, general and sector’s objectives to increase competition and performances of industry, from which we mention: Realization by SNLO of a production of 16.3 millions of lignite tons, to satisfy the energetic complex request as well as other advantages of energetic coal; Development of mining products in conditions of a free market; Realization of the mining activities only in the conditions of environment protection;
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Conversion of the entire carboniferous sector on condition of judicious correlation of - production capacities with the necessary of the energy producer, followed by - accelerated privatization; Modernization of the distribution nets of natural gases and continuation of works unfinished in 2005; Realization of a production of 13.100 GWh, electrical energy by Energetic Complex Rovinari (6.300GWh) and Energetic Complex Turceni (6.800 GWh); Privatization of companies of production and distribution of electric energy toors; Increasing the capacity of interconnection with European Union; Implementation of measures mentioned in the National Program of reduction of emission that come from great burning installations; In the present context, Romania and implicitly district Gorj passes from short term prevision , extremely important, as time horizon and expectations of population which have their honesty and limits, to medium and long term previsions. Their goal is to harmonize requirements of development in internal plan with the ones of dignified and full integration in European Union and euro-Atlantic structures. The result that is expected is the response to the necessity of configuration and support of a durable development, on inherent part, by consciously assuming unavoidability of processes of globalization, identification and operative character of the priorities of economic and social development of district, becoming so extremely important. Stage 2007-2025, crucial for the European future of Romania, will mark the integration of Romania in European Union, its development in a new context, with costs, constraints, advantages and afferent opportunities, which imposes a new model of approach of development problems, especially time horizon of the national and European budgetary exercise. In this context was taken the decision of auctioning in a convinced manner for the acceleration and finalization of institutional 252 Knowledge Based Organization 2008 International Conference and structural reforms, to conjugate efforts of local authorities and of the representative of business environment, with the ones of the organizations of trade - unions, patronal and the civil society organizations to attract as many investment possible in the region, especially in the fields with real development potential, with priority for our district, like: ¾ production and distribution of thermal and electrical energy ¾ extraction, processing and distribution of raw materials (petroleum, methane gas, coal, ¾ limestone, granite, marble); ¾ processing caoutchouc, plastically mass and wood; ¾ production of chairs, furniture, plywood, pal; ¾ processing metals and metallic constructions; ¾ producing and processing glass; ¾ şproducing and processing vegetal and animal products; ¾ constructions, commerce, tourism, agro-tourism, rural tourism and services For this, it is necessary the consolidation of a friendly business environment, free of administrative - financial barriers, that are created and generates corruption, based on active presence of entrepreneurs from SME, cooperation and small farms, in the context of realizing and presentation of a real, positive image of our region with an attractive destination and reciprocally advantageous for all investors, with the desire of capitalization common interests and potential existent in the district. For district Gorj, durable development, as long term process, must respond to needs of recovery the inequalities inherited and perpetuated in development. This means to modernize and to bring up to date economical, social and cultural sectors and to fully develop human and material resources, to increase the living generated level, power of purchase, to reduce poverty and to protect nature and environment. In this sense, as part of the strategy of durable development of district Gorj (2003-2025) based on a large scale of public and institutional consulting- investigation, have been identified needs and promoted main action directions to reach major objectives, respectively:
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Economic - social development and administration of public and private field of the - district, based on real, immediate and future needs of the regions and its inhabitants; Adhesion to European Union, authentic integrity, undertaking and application at local - level of the legislation, harmonised with communitarian acquis. increasing the role ofauthorities of local administration as interface in relations with all international - institutions and especially with UE organisms, through: ¾ Development of external relation and recession of the cooperation between public institution of the district and national administration, ONG, associative structure from regional and national plan; ¾ Regional development; ¾ Acceleration of the international collaboration of programs of external financing; ¾ -Increasing the capacity of absorption of UE funds for preparation, on the - territory, for development of financing of as part of Structural and Cohesion FUNDS, European Social Fund, F.E.O.G.A. and the bilateral ones. ¾ City development and modern arrangement of the territory, realization of public works, preservation of historical and architectural monuments ¾ Development and modernization of the public local administration, programs in the field of defence, public order, respecting citizens rights and liberty; ¾ Development of agriculture, forestry and protection of surrounding environment as part of Communitarian Agricultural Politics ¾ Development of public services, commerce and tourism, at UE standardş
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¾ Development of the scientific activities, education, health, cultures, sportive and pleasure activities, ensuring real social protection Briefly, priorities identified and assumed consist of identification and ensuring financial resources that are necessary for the realization of programs of economic and social development that will lead to: ¾ Development of the technical and institutional infrastructure, support of long time development, with special impact on short term; ¾ Development of external relations and widening the cooperation between public institution of district and national administration, ONG, associative structures from regional and national plan, acceleration of the international collaboration of programs of financing of the areal development; ¾ Increasing the role of the local authorities as interface in relations with all international institutions and especially with UE organisms ¾ Profound reform with public local administration, re- orientation of public administration for reduction of the bureaucracy, improvement of relations with citizens, respecting human rights and citizen’s freedom, supporting ONG for consolidation and involvement of the civil structures of the society, as active partners of dialogue ¾ Efficient administration of the public and private patrimony of district Gorj ¾ City development and arrangement of the territory with accent on environment protection, preservation of historical and architecture monuments; ¾ Objective actions for the improvement of the legislative frame in the field of taxation, of protection of internal production and stimulation of exports. ¾ Ensuring real social protection for citizens in difficulty, improvement of the system of protection of health of the population; ¾ Development, modernization and profitableness of the public services of communal administration; 255 Knowledge Based Organization 2008 International Conference
¾ Modernization of the commercial net and continuation of the stimulation of privatization and development of this activity field; ¾ Supporting the development of the scientific activity, especially at the level of two universities, of education at all its levels and of culture ¾ Creation of better conditions for the development of entertaining, sportive and recreation activities These programs will be presented as part of sector’s politics, in conformity with government program 2005-2008, this way: Prosperity of the citizen is not capable to exist beyond law state, of the private prosperity of the consolidation of a powerful middle class, stable economic and financial. Privatization of big enterprises of which the economy of the district is dependent in percentage of over 90% and attenuation of the negative effects of the processes of structural adjustment and conversion of the extractive industry of lignite and the energetic one, must be counter balanced by realising an institutional, legislative and financial frame that is favourable to the powerful development of SME and private initiative, offering economic and social alternatives that will lead at the consolidation of a powerful middle class. Measures of fiscal relaxation that were adopted are in course of adoption, as well as alienation of practices of exemption and repayments of debts to budget, increasing the balance of taxed economy, in detriment of underground economy, punishment of fiscal evasion as economical - financial infraction, that requires to be realised as faster possible. Programs adopted aim, mainly: Development of markets ensuring free circulation of work force, of goods, services and capitals, by: ¾ Identification and elimination of barriers and discriminations that exist in normative documents adopted al local level (decisions adopted by District Council, local councils, Disposals of Mayors, the ones of Not-concentrated Public Services) in the way of free circulation of persons and services;
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Taking measures so that decisions that will be adopted in the future by the local authorities and institutions, not to contain discriminatory barriers Elimination of the barriers imposed by local authorities, limitation of the bureaucratic excess that might lead to predictability and establishment of the business environment, through: Measures that will guaranteed free competition, transparent access to resources and maintenance of transparency of the business environment and adopted local politics of development; Free access to public information, respecting national legislation and international procedures regarding public purchasing; Reduction of the administrative procedures regarding obtaining authorization, approvals and notices; Simplification of the formalities regarding entrance and exit from the market of the companies or the actualization of information connected to the life of the company Simplification of the control procedures, modification of correctness towards investors
Active support of SME sector through active measures, like: ¾ Active involvement of commercial banks from the district in the effort of reconstruction of the economy; ¾ Financial support of the SME, cooperation and enterprising workers sector by reducing credits costs; ¾ Improvement of the legislative frame regarding private financial institutions adapted to needs of small and middle entrepreneurs; ¾ Credit cooperation, popular banks, specialised institutions of financing of agricultural works, funds of granting credit; ¾ Realization of territorial representations of National Fund of Granting Credits for SME ¾ Simulation of foundation of the cooperatives for development of agro alimentary products realised, based on European Union pattern 257 Knowledge Based Organization 2008 International Conference
¾ Implementation of some pilot projects due to simulation of the handcrafts cooperatives and development of traditional handcraft; ¾ Transparent administration of using communitarian funds due to development of SME in Romania; ¾ Introduction of economic incentives that will encourage SME so that to become a supplier of services for great enterprises in the district; ¾ Programs of preparation of human resources, marketing as well as for the improvement of the quality of products and services, to facilitate the access of SME on European unique market ¾ Development of the networks of district centers of consultancy and information for SME Active and passive measures on work market Analyze of the impact that the process of migration has, generated by the lack of working places, low life standards, life in poverty, on configuration of the local work market ¾ Analyze of the deficit of occupation of work force at district level and improvement of work force and its employment through: Solving problems of young persons unemployment and prevention of long term unemployment; Friendly approach of the occupation of systems of advantages, taxes and preparation Development of politics of activation of old persons; Development of the necessary capacity for a new work market in the context of continuous learning; Active politics of development of work places offer by fighting against proliferation of blockages on work market; Fighting against discrimination and promotion of the special inclusion by the access to occupation ¾ Improvement of employment of work force, promotion, initiative and enterprising spirit, creation g working spaces by: situating in Mediation Program of 4150 persons in the year 2007; 258 Knowledge Based Organization 2008 International Conference
situating the graduates from education institutions by subvention of the work place for 420 persons; positioning persons with handicap by subventioning work force; new opportunities of employment in a society based on knowledge and services creation of high qualitative working places; exploitation of the opportunities of the economy based on knowledge and acceleration of a development of economy based on this; promotion of the workers by cancellation of the obstacles situated in front of the geographical mobility ¾ encouraging the adaptability between activity sectors and its employees, through: modernization of work conditions; encouraging adaptability in enterprises, component of learning during the entire life; ¾ strengthening politics of promoting of the equality between men and women Continuity of main approach of this subject Conciliation of the work with family life To increase the degree of occupation of work force and real decrease of employment rate in district Gorj, in conformity with the principles of the Governing Program on period 2005-2008, actions and measures that is necessary for the realization of the Program of Occupation of Work Force during year 2007 will be realised with the involvement of the social partners, all strategic decisions regarding the activity of occupation of unemployment being submitted to debates and local administration, which functions as part of the District Agency of Occupying Work Force Gorj. Specific services of occupation from unemployed and employers will be realised with equal chances by the suppliers of counselling, professional formation and occupation, authorised on the work market Gorj, based on contracts of performing services in conditions of law with the District Agency of Occupying Work Force Gorj and local agencies of occupation as units responsible of the implementation of occupation programs and implementation of local resources. 259 Knowledge Based Organization 2008 International Conference
By passive measures - the amounts that are necessary for the payment of unemployment allowances and legal, monthly supplementary incomes will be ensured from the budget of unemployment budget. In conformity with provisions of the Governing Program and legislative modification the payment of unemployment allowance will be realised with modified amount depending on the subscription to the budget of social insurances for unemployment. Graduates of pre-university and university education will be stimulated as follows on the work market by approach of a bonus of an average wage on economy to which will be added an amount equal with the value of unemployment allowance to which will be entitled in conditions of law and the employers will be exempted by the payment of contribution at the unemployment fund for graduates employed on a period of 1 year. Employers employing unemployed persons that are unique supporters of single parent families or persons older than 45 years, will be exempted of payment of the contribution at unemployment fund for a period of 1 year, and facultative insurances in the system of unemployment insurance will be realised only together with social and health insurances. By active measures - will be followed the increase of their gravity from the total of expenses of the budget for unemployment insurances. Through special programs, they will fought against unemployment for unemployed persons on long period and adults, so participation rate of these categories on unemployed persons to active measures of financing from the budget of insurances for unemployment will represent 12-15% in the year 2007. Incitation of the employers which employs persons with ages over 45 years, as well as other under-privileged categories and prolongation of the active age of the persons from age categories that area close to retirement, that is, the ones having 3 more years until retirement, by supplementing work places from the budget of unemployment insurances, represents also a priority as part of active measures to fight against unemployment.
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By mediation of work places - will be situated in connection with employers, with persons searching for working places, to establish work and service rapports.
References [1] Anghelescu, C., Ciucur D., Suciu M.C., Grosu T., Socol C., Pop V., Strategic Options of Romanian Economic Development, ASE Printing House, Bucureşti, 2004. [2] Băloiu, M. L., Frăsineanu I., Innovation in Economy, Economic Printing House, Bucureşti, 2004 [3] Drucker, P., The Management of the Future, Asab Printing House, Bucureşti, 2004. [4] Gilpiu, R., World Economy in XXI century, Polirom Publishing House, Iaşi, 2004.
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THE REAL GUARANTEES IN CREDITING PROCESS IN AGRICULTURE
Asst. Prof. Bercean Radu Vlad
“Babeş-Bolyai University”, Cluj-Napoca,
Abstract The guaranties system is split in two systems: o The credit guarantee system o The system of guaranteed funds The real guarantees are juridical middles of guarantee, which assure the bank two attributes: for choice or of pursuit. The main characteristic of the guarantees contract represents their indivisibility, which the good guarantees the whole credit and until this is reimbursed to bank and ask the interests paid by the client, the guarantee remains. These contain: real personal guarantees, mortgage, banking deposit and the privileges.
Keywords: crediting risk, guarantee risk, guarantees, the elements of a guarantee, systems of the guarantees, the real guarantees, the real personal guarantees, the real personal guarantees with deprivation and without deprivation, mortgage, banking deposit (collateral cash), the right of general deposit, privileges
1. Introduction Despite innovations from financial sector, the risk of credit is for far the most important cause of banking bankruptcies. As part of crediting politics are made management procedure for the crediting risk in which is made a standardization concerning the customer evaluation and portfolio of existing credits, rating
262 Knowledge Based Organization 2008 International Conference procedures of credit that are to be granted as well as a periodical revaluation of credits In these conditions, a factor in taking managerial decisions concerning crediting, which limits the risk of credit, the real handspike of management regarding the charterage of the credits and the retrieval of guarantees, is represented by the guarantee system.
2. Basic concepts ¾ scientific hypothesis ¾ economic phenomenon explanation ¾ scientific observation ¾ statement of hypothesis ¾ hypothesis verification ¾ causal and factor analysis ¾ case study ¾ induction ¾ deduction ¾ economic measurement ¾ economic model ¾ hypothesis verification procedure ¾ economic experiment ¾ simulation ¾ economic scenario ¾ scientific conclusion
3. Results and discussions THE REAL CREDIT GUARANTEES are juridical middles of guarantee, which assure the bank two attributes: for choice or of pursuit. The main characteristic of the guarantees contract represents their indivisibility, which the good guarantees the whole credit and until this is reimbursed to bank and ask the interests paid by the client, the guarantee remains. These contain: real personal guarantees, mortgage, banking deposit and the privileges. Real personal guaranties are characterized through suppleness and elasticity, conferring to creditor a bigger safety and debtor a
263 Knowledge Based Organization 2008 International Conference freedom in disposals paper regarding the goods that guarantee the obligation. The real guarantees and the tasks made on personal goods, which fulfill the publicity condition from the moment of registration notice of real guarantee to AEGRM. In case of dematerialized values, the guarantee made on the account, in our opinion this overall being a progress because facilitates the administration of debt personal values. Real personal values (deposit) can be: ¾ With deprivation ¾ Without deprivation having juridical equal force; Delivering the good to the credit bank is an essential element for the validity of the deposit, the possession must be real, actual. In our opinion, the deposit with deprivation has as the main limit the fact that takes the goods from the economic circuit of the investor with the financial consequences that results there out, what cause a stricture of the sphere of the objects given in deposit and the limited application of these guarantee. The limits of the deposit with deprivation are replaced of the deposit without deprivation who presents the advantage that the investor goods are in his possession, making larger the application sphere of the deposit. Because, in case of mobile goods, the deposit without deprivation didn’t represents a safety guarantee for the creditors because of the existing risk of goods alienation having therefore an higher degree of volatility have been conceived modern techniques which gave to the creditors juridical instruments that could permit that deposit goods (without deprivation) to be taken down to books that permits their finding and to assure their unavailability till the pay of debt. Previously enforcement of the norms contained in the Law nr. 99/1999, Title VI, the credit institutions were dealing with earnest difficulties in making deposit, because, in many cases, the goods offered by loaners as guarantees weren’t good for deposit without deprivation, that becomes non-economic, due to operative bank incapacity to take over the good in keeping with all the responsibilities than results. 264 Knowledge Based Organization 2008 International Conference
Even if Romanian legislation offered two solutions that could be used in practice they weren’t enough used: the warrant deposit and the background of trade deposit. A real mobile guarantee is the deposit of the background of trade with all the disadvantages what results because of his volatility. The main advantage of the trade deposit is the possibility of being legally made without giving the goods in nature that formed him, by simple registration of the contract at the Judge and at the “Commerce Registry Office”. Another advantage results from his universality, the guaranteed bank having the right to ask forced execution even if aren’t the same assets that existed at the moment when the deposit contract was singhned. A real estate guarantee without deprivation is over the deposit values with discount given by the bank It can be made the real estate guarantee without deprivation on real estate values dematerialized, trade on real estate markets. Another good settlement and brought on nowadays is knew by real estate guarantees through Title IV from Law nr. 99/1999, normative document that shows through his pragmatic side in detail and courageous approach inspired by European legislation. As opposed to the old settlement from Civil Code and Romanian Commercial Code, that contains specially the guarantee of personal goods – that by the way were defining the meaning of deposit – the new settlement contains many personal goods but especially non- personal goods whom can be guaranteed with : cession, the rights of book debts,, warrants, leasing and renting forms, the title balance accounts of the accounts of warehouses, the certificates of warehouse, credit bounds, the shares and the social parts, the titles of credit, intellectual ownerships, assurance bonds, fungible goods and non- fungible, the background of trade etc. Taken with guarantee tile, the mobile goods aren’t taken out from economic circuit and contribute to the achievement of speed of radish of assets. All these get a commercial special note that goes further by come reassertion as credit and payment instruments, be transmitted as real estate values as instruments of credit and payment negotiable, that can 265 Knowledge Based Organization 2008 International Conference be transmitted as personal values, can form the object of some commercial transactions, the auctions are still quoted at personal stock exchanges, promissory note bill can be anticipated, debts and other rights can be reactivated as object of personal guaranties contracts. Besides, is taking place the rising of the interest towards the more efficient usefulness of those, and the risk is made between more participating subjects at the business.
4. The mortgage From real guarantees, the mortgage is by far, as importance, and knowing of the one that takes a loan to respect his contract obligation. The Mortgage is a real accessory right that has as an object affecting an real estate good of the debtor or another person, made without deprivation, that gives to the mortgage creditor the right to follow that real estate without concerning who owns it and of being paid first opposed to other creditors from the price of that good. In case that conventional mortgage is made for guarantee of a banking credit, the creditor from the mortgage contract being the commercial bank that gave the credit, and the one who makes the mortgage – the loaner from the credit contract – or a granted – then we speak of banking mortgage. The mortgage can be a real estate right that is under the requests of the real estate publicity. The publicity is made by registering the mortgage in the Property Registry having a double meaning, a way to inform the thirds and a way to determine the rank of mortgages. The major advantage of the mortgage is that on the same good can be made more mortgages. The date of registration in the land book, gives the rank of the mortgage. Therefore, in case where more than one mortgage has been set up for a building, the priority rank of each mortgage is given by the order in which registration in the Property Register has been registered. The mortgages registered in the same day have the same rank. The creditor of whose mortgage has prior rank has the right that from the price of the real estate that was mortgage to be paid with priority. From what remains, are to be paid the next mortgage creditors, in order of their preferred rank.
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In case of banking credit, mortgage being conventional, the bank didn’t admit (with little exceptions) only the I rank mortgage. The value of the credit is always lower than the mortgage value, being a factor of substantiate the decision of crediting. The mortgage is favorite to banks because contrary to deposit didn’t generates the risk of guarantee, on the it preserves or just raises his value on market in time, what gives a higher safety to the bank in the recovery of the book debts. In our opinion, as main disadvantages of guarantee with mortgage goods we enumerate: difficulties in the evaluation of the guarantee, delays in forced execution of mortgage, substantial costs for the bank made for giving in possession of propriety. Even if “The Code of Civil Procedure” devoted to forced execution over motionless goods a stretched part, offering a detailed settlement, has established a difficult procedure, heavily, even overcomed in some aspects. Although presents disadvantages, is the most secure guarantee being as far, the most used form of credit guarantee of the banks. My opinion is that it would be necessary and compulsory that the institution of credit when the mortgage is singhned to take down in the leaf of task land book the credit quantum and the interests and accessories.
5. The banking warehouse (collateral cash) We consider that the main disadvantage of utilization of banking deposit, as source of guarantee, consist in the fact that this presupposes an immobilization of funds from the debtor in order to guarantee his obligation of payment. For the bank, the main disadvantage of banking deposit is connected to the fact that can’t take as legal commitment of pay, in favor of a third person, his own passive lion (the money stored in the bank is shown in bookkeeping the passive lion of the bank). This disadvantage for the bank can be avoided only if the deposit is constituted to another bank, and the bank there that deposit exists gives a guarantee in favor of the bank that grant the loan. The general deposit is not used by banks because didn’t protect the creditors against the risk of insolvency of the debtor, so didn’t assure the complete satisfaction to every creditor, of they are many, 267 Knowledge Based Organization 2008 International Conference especially when the patrimony asset is lower than the passive; in this case, the risk equality of every creditor is transliterated in that the sums realized shall be delivered, proportionally with everyone’s debt. While the book debts with real guarantees are paid with priority from the good price made as guarantee, not-granted deposits how is general deposit have little chances to be paid. The prerogatives conferred by general deposit to bank, as a creditor, didn’t offer protection against debtor insolvency. These prerogatives are: ¾ measures of preserve goods (distrain the insurer etc.); ¾ the forced pursuit of goods; ¾ to exercise of some exceptions stipulated by the law. Concerning the improvement of regenerative chances in case of insolvency customer, we recommend endowing with real and personal guarantees and do not appeal to the general deposit only in exception cases. The personal privileges confer to the preferential creditor the right of preference. The real privileges confer the right for choice and the right of pursuit THE JURIDICAL CHARACTERS OF REAL GUARANTEES The contract regarding that: ¾ is a real right ¾ it can be made with dispossing of without dispossind ¾ gives the bank the right to satisface creanţa ¾ can guarantee any type of obligation ¾ it covers the obligation guaranted, ¾ it is making up on base of a real guarantee contract, made in autentic form. It can be contracted trough prin înscris sub semnătură privată. The juridical characters of pledge with disspossing: a) It is an accessory contract b) It is a real contract c) It is a unilateral(oneside) contract, d) It is a indivisible contract e) It is a solemn contract f) It is a executor title, g) The pledge contract may have as an object only motion goods, 268 Knowledge Based Organization 2008 International Conference
The juridical characters of without dispossing pledge: ¾ the pledge contract hase an consensual character ¾ it is bilateral The juridical characters of mortgage : ¾ it is a real right ¾ accessory ¾ is indivisible ¾ oneside ¾ is conventional ¾ is made throught autentic act In the system of Law nr.99/1999, the bank has the quality of guaranted creditor only if the guarantee contract is put at the “Electronic Archive of Real Estate Gurantees”. Of course, this continues to be valid between parts, but it losses one of his main atrributes of guarantees, that of being opposing to thirds as long as he’s not registered ar the archive. The law includes in the category of real motion guarantees some categories of real estates, accessories, so those which are conected to a field or construction. Can’t form the object of personal guaranties constructions and constructions materials which aren’t accessories of real estates. Such objects are fixing in real estates by destination, but the law permits to keep its caracteristics as motion good. As follows we will have mortgage on fields, buildings, construction materials and pledge for appendages, that is two guaranties. Any real mobiliara quarantee can be transmited through cession, which represents a new element in our legislation. The prouf of cession can be made event through a contract made in private, and to be opozabilă terţilor, the cession must be registered at the archive. The creditor bank has the possibility to give to another person the cession right on which has been constituted real guarantee, the rest being transmiting to other creditors or the debtor itself, concerning the rules established by the law. In case of cession of mobiliara guarantee contract, that represents executor title and trought his way of de reglementare tinde to become a contract of his own and even a valor title.
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6. Concluzions As follows the analyzes made over the guarantees, it has reached at the conclusion that the most used are the real ones (mortgage and real personal guarantees), and an important mean has the banking deposit (collateral cash) and the cession in favor of the bank of the rights of compensation form assurance companies. The mortgage is preffered to outher types of guarantees, because represents higher credibility and stability, even if it is more difficult to capitalize in case of non-retrieval of credits at time limit. The deposit hase the dissadvantage that the goods taken to deposit, because of their fizical and moral worn out generates the garantee risk, that grows as the reimburs time is higher. The guarantee risk means that because the fizical and moral worn out the goods are losing its value and can’t cover the value of credit and debts in case of forced execution, meaning that the have no market covery value and the price becomes ridiculous.
References [1] Bercean Radu Vlad si altii, Moneda si Credit, Editura Silvania, Zalau, 2007. [2] Bercean Radu Vlad si altii, Contabilitate Bancara, Editura Silvania, 2007. [3] Bercean Radu Vlad si altii, Management Financiar Bancar, Editura, Silvania 2007.
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TENDENCIES IN DEFINING AN OPTIMUM GLOBALIZATION MODEL
Asst. Prof. Popa C. Cătălin
”Mircea cel Bătrân” Naval Academy, Constanţa, [email protected], [email protected]
Abstract Over viewing the most recently evolutions throughout global economy, we can easily conceive that the collateral effects of economical globalization and market integration, represents the main issues debated in specialized professional or political circles. The unanimous impression underlines the fact that integration in contemporary global market development exceeded too much and to profound the conceptual frame formulated as work hypothesis for the beginning of ’80’s the realities evolving radically uncontrolled. In this case, the free capital global running is no longer a factor for market equilibrium as “market fundamentalists” predicted, financial integration as global process creating and forcing gradually the market bubbles in lack of an efficient frame of global supervision. In this context, the international effort should be oriented toward remodeling the fundamental global structures implicated in globalization process.
Keywords: globalization, global economy, economical integration, global factors
It becomes more clearly every day passed away, that we are witnesses of a profound reconfiguration of global order from political, economical and social point of view. First step after the moment when the credit crise consequences will be blurred, or within this action plan, should be the reconfiguration of political, social and economical structures from a global perspective.
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On the base of this complex process will be the new conceptual design of “globalization matrix” because we need first to understand the priorities in economical functionality in relation to the new international realities from a global society as main perspective for the next decade. In this paperwork I have tried to configure a matrix of globalization determinants, taking under consideration al those factors that have determined or influenced the globalization and integration processes. Starting on the idea of most accepted factors, traditionally used in defining the globalization matrix , based on three dimensions (economical, political and technological), I’m proposing five fundamental factors in the way of configuring the globalization process: (1) economical-financial factor, (2) technological factor, (3) social factor, (4) political factor and (5) cultural factor (figure 1). In the next paragraphs we’ll explain the importance and relevance of each determinant factor, in our opinion, for overseeing the structural function of globalization as a succeeded approach [7]. Based on these five factors, first of all, is very important to notice the fact that globalization matrix has a natural direction and a logical determination conditionality between its components, as can be figured in matrix in the relation of “economical-financial → technological → social → political → cultural” (see figure 1). Obviously, economical - financial factor should be maintained in the top of determinist pyramid of globalization synergy, representing the engine of all tumultuous movements between nations and the rational reason for transnational vector phenomena. In spite of this, the financial and economical dimensions can easily be doubled by a lack of authority, deliberately considering that the markets are self-adjustable and able to get the equilibrium from inside. We have two issues on this meter some times neglected by officials or specialists [9]. First the expression of “economical” is a must to be completed by the “financial” factor under the same dimension, or separately but into the same equation at least. Second, as fine as the U.S. sub-prime crise already is proving – we need free markets but governed in some limits negotiated on a global level. The economical and financial institutions
272 Knowledge Based Organization 2008 International Conference are reduced in spectrum of their targets, being focused on profit idea, not always harmonized in social responsibility terms.
ECONOMICAL- FINANCIAL Economical realities Resource allocation FACTOR process
TECHNOLOGICAL Technical and Technological FACTOR informational values progress
SOCIAL FACTOR Social needs and Needs / expectation expectations satisfaction
POLITICAL Global negotiations Global consensus FACTOR
CULTURAL Cultural values Social equity, FACTOR acceptance
The consensual acceptance of globalization process legitimacy “A globalization for all”
1 Figure 1: The figurative matrix as a globalization model
The governance of economical and financial entities and actions is the most reasonable response to the natural tendency of global economy and financial less reglementated markets. In fact the governance is a must to evolve in a same pace as real economy correlated to financial industry for being efficient and useful to guarantee the global equilibrium effort (see figure 2). In fact, the institution governance comes to harmonize the individual interests to global priorities, in terms of reasonable and efficient blend of the parts to the global puzzle.
1 This perspective represents the author’s point of view, starting from the suggestions and opinions formulated by Lucian C. Ionescu Professor Ph.D., Rector of Financial Management Faculty, Romanian Banking Institute, Bucharest, Romania 273 Knowledge Based Organization 2008 International Conference
As we can easily observe studying the above picture, at this moment, on the one hand the financial economy exceeded in speed and complexity the real adapting world economy possibilities and, on the other hand the international institutional architecture is not ready yet to govern or to arbitrate the economical, financial, social and political relations between nations. The global efficiency is based first of all on the correlation between financial market actions, economical behaviors and global harmonized goals. Without any doubt, against market self-adapting capacity theories, the international market’s supervision and governance, are the main solutions in global equilibrium approach. In conclusion the economical – financial factor can be considered as being the engine of globalization and integration process.
Globalization Financial economy
Real economy
Institutions for governance
Time factor Figure 2: The evolution of economical- financial dimension related to institutional architecture
Technological factor is the next component of globalization process being strong related to economical efficiency and social performance from the individual comfort and satisfaction point of view. We have to underline as a new perspective, the crucial importance of technology, because this factor can be transformed, more easily then others, into the main globalization engine, as a centrifugal progress entity in the of figured matrix centre. The social needs and expectation in better can be solved assuring a technical progress free and equitable circulation between nations. The population is able to understand more easily the globalization
274 Knowledge Based Organization 2008 International Conference benefits getting some direct advantages from the general progress implemented all over the world. The success of virtual spaces in communications and global networking connections implementation on a global level, are simple examples for the priority of a technological overview for the entire globalization process. Taking under consideration this perspective the technological factor can be consider the most reasonable method for globalization values spreading. The social dimension is in the third position as global factor and contents all those attitudes, acts or facts in related to economical globalization and integration processes. This factor calls for a real harmonization in terms of balancing the national perspective to the regional and global priorities. The relation between global and national dimensions in terms of economical goals conduct in case of perspective harmonized accordance to the globalization acceptance as an inevitable process, not only bad but profitable as well, for all human communities. Social perception is tied to economical personal satisfaction and any discrepancy between expectation and realities can be easily attributed to globalization phenomena influences as an improper and incorrect process. So, the social satisfaction based on political negotiation and cultural positive interferences, must assure the fundamental base for the most wandered result: globalization acceptance as a benefic process, governed by the priority of “globalization for all” principles. On the intuitive level, the social dimension offers the rational work hypothesis for globalization development in accordance with national goals and human expectations in terms of social satisfaction. The political factor comes to tie as a binder, all those components detailed above, under the international negotiation process, offering the official ways for developing and implementing regional and global strategies and policies. The evolution of the political perspective depends on the institutional efficiency in terms of dialogue coherency between parts in modeling the common functional architecture for a global society, at least from the economical point of view. In case of crises only the political frame calls for action legitimacy on global level. The cultural factor represents the most unknown variable from 275 Knowledge Based Organization 2008 International Conference the globalization matrix functioning, being determined exclusively by the human characteristics, preferences and emotions. The cultural bases should be matrix closing circle toward a favorable current for globalization acceptance. In the picture from figure 3, I have synthesized, as a personal opinion, the optimum theoretical keys for a globalization dynamics towards successful results.
ECONOMICAL- FINANCIAL The process ENGINE FACTOR
TECHNOLOGICAL The SPREADING of FACTOR global values
SOCIAL FACTOR National and individual GLOBAL SATISFACTION GOVERNANCE PRIORITIES
POLITICAL Global action FACTOR LEGITIMACY
CULTURAL ACCEPTANCE FACTOR
The consensual acceptance of globalization process legitimacy “A GLOBALIZATION FOR ALL”
Figure 3: The global governance priorities In conclusion the paperwork had shortly investigated the main resources assigned to the globalization process as we can consider taking under consideration the basic factors implied in the international arbitrage of economical dynamics. The equation of a successful global society is a must to be built in a totally harmonized formula, defined by the relation between <“economy engine” → “value’s equitable spreading” → “satisfaction” → “action legitimacy” → “acceptance”>. 276 Knowledge Based Organization 2008 International Conference
Taking under consideration all this aspects, the modern world should promote a strategy framework for each dimension separately, the final global agreement according to the individuals satisfaction, depending on the quality of these mixed policies. Finally, if the mixed strategy will contain more or less than proper quantity for each dimension then the turbulences will appear, making possible the crises burst, inducing as a consequence, incoherence of a global response for any discrepancy in proper world functionality.
References [1] Aglietta M., “The International Monetary Fund and the International Financial Architecture”, C.E.P.I.I. Paper Work No. 08, 2000, pp. 18-43. [2] Aglietta M., “Financial Macroeconomics”, Vol. II, C.N.I. ,,Coresi” Publishing House, Bucharest, 2001, pp. 84-112. [3] Boyer R., Young W., “Mundell’s International Economics, Adaptation and Debates”, I.M.F. Staff Papers, 2005, pp. 8-16. [4] Crochane J., “Financial Markets and Real Economy”, N.B.E.R. Working Paper, 2005, pp.25-44. [5] Levine R., “Finance and Growth”, N.B.E.R. Working Paper, 2004, pp.11- 37. [6] Merton R., Bodie Z., “The Design of Financial System”, I.M.F. Working Paper, 2005, pp.10-45. [7] Popescu I. [et al.], “Globalization. Myth and Reality”, Economica Publishing House, Bucharest, 2004, pp.132-164. [8] Teunissen J., “The Management of Global Financial Markets”, FONDAD, Hague, 2000, pp.31-43. [9] ***, “International Financial Architecture”, Information Note by World Bank Staff, 2005.
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FUNCTIONAL OVERVIEW OF FINANCIAL CRISES
DEVELOPMENT AND PROPAGATION
Asst. Prof. Popa C. Cătălin, Assoc. Prof. Golea Pompiliu, PhD
”Mircea cel Bătrân” Naval Academy, Constanţa, [email protected], [email protected]
Abstract The U.S. sub-prime crise developed in the last few months as a dangerous syncope for the entire international financial system, recall for the rethinking of market functionality, revealing the international institutional weakness in financial system supervision on global scale. The mortgage volatility induced by the international dereglementation and derivates contemporary burst, correlated with a relaxed supervision framework, transformed progressively the credit market into a system “bubble”, making possible the distortion of real estates values toward those levels forced by creditors. Throughout a weakness chain, many financial institutions, determined by a savage competition on this sector, left away the prudence and borrowed money from different investors, guarantying the long terms transactions, with short time derivates from speculative short-term market, supplying the bubble. In this context, the paperwork is meant to recall for reinventing the risks models, so that the crises to be anticipated earlier than its development moment.
Keywords: globalization, financial crise, global economy, monetary system, international management
The study is centered on the liquidity risk, considered as far, the most important pillar of crises propagation chain, being in the same time the most facile element in determining the market pressure as an efficient early warning system. Credit risks, exchange rates risks or real values depreciation risks are connected to liquidity lacks, the money need being the first moment for crise burst as the liquidity is
278 Knowledge Based Organization 2008 International Conference the first step in market stabilization process. The hazardous behavior is practically determined by the creditor’s fear to loose the possibility for drawing back their investment at those sufficient levels to protect their values. The credit risks, exchange risks or value market risks are fundamental reasons conducting toward liquidity risks, being as well the main transmission channels in case of a those crises. The market falling and market bubbles start to develop released by credit, exchange rates or real values deformation, into a liquidity crise as an effect for market equilibrium tendencies. In fact, starting from this point of view and describing this situation as a model, the liquidity running provokes the market shocks, feed by the speculation behavior for investment protection, conducting finally toward market values correction. Aglietta M. has been observed that, the market sensibility is perennial” at least such time as the financial transactions volume exceeds a hundred times the real economy transactions volume [1]. If the transaction’s maturity, base on speculation, is shorted more than the market can support in terms of liquidity, especially in case of real values reappraisal, with disconnecting the long term perspective to short perspective, the market will fall facing with an avalanche of closing the derivates options. The tendency of short or long position closures on financial markets will require huge volumes of liquidity throughout a short time interval. Transmitted as a contagious disease, the appearance of a system crise will be inevitable and the market will ask for and “ultimate borrower” [1]. Starting from the idea that nobody is able to manage separately a market behavior, as sub-prime crise recently underlined, the international financial system is a must to improve its institutional possibilities for a immediate “financial pull”, based on central banks system coordinated by international financial organizations (as International Monetary Fund or Bank for International Settlements) [6]. In this perspective, is needed first to redefine, on a theoretical level, the mechanism of crise appearance and development. In figure 1 it have been concentrated representatively the main components of a systemic crise from global perspective, putting together the national, 279 Knowledge Based Organization 2008 International Conference regional and international components, under the governance of international financial institutional architecture.
A Global informational system
B Early International financial Credit risks warning Financial markets systems institutions
LIQUIDITIES Financial- International banking risks Monetary Funds y system Exchange risks regulation FUNCTIONAL CRISES Bank for uidit and q C International supervision Settlements
Li SYSTEM CRISES Capital Value risks Indebt Crises structure Central Bank Monetary Crises arbitrage System Market-values Crises
Macroeconomic evolution D Figure 1: The financial crises functional model
Facing with this conceptual global risks mechanism, the international financial institutions have only two strategies. First to improve the supervision policies and instruments for a proper detection of those risks capable to evolve into liquidity syncope, and second to conduct the global market interventions, before or in time of a crise happening. The crise acting behavior (in terms of prevention, crise governance and finally decrement of negative effects), is explained by an ensemble of an international policies and strategies, based on four market priority vectors, as follows: global information symmetrical system (A), supervision policies (B), intervention mechanism (C) and global macro economical supervision and adjusting mechanism (D). The preventive attitude should be based more on global criteria for warning against speculative behavior deviations on markets in relation with reasonable values limits for titles or mortgages. If we understand the financial world as Soros G. presents in his last work (“The New Paradigm of Financial Markets”), being a reflexive sum of 280 Knowledge Based Organization 2008 International Conference speculative behaviors, then the preventive attitude should combine the supervision with active governance based on a Central Bank System action, unfortunately inexistent as a coherent structure for now. The prevention should take as main pillar the supervision of financial system policy in terms of Basel II Accord, but in a different perspective. The capital requirements should be harmonized with traditional values in new risk limits, without any chance for hiding the market bubbles in appraisal. Derivates should be interdicted in guarantying credit processes and the specialized option market should be separated from banking system action. In fact the main reason itself for present financial crise is the miss-understanding of the separation between real economy and financial markets in terms of speculation and investment ration of financial instruments. The bad mix of long term titles designed for investment’s credit with speculative derivates meant to protect in chain the same values, conducts inevitable toward an over appraising of guarantees brought in business and finally toward a functional crise of indebts. On the edge between real economy, hungered for investments, and the financial system, with a huge appetite for speculation, the information asymmetry and macro-economical positive statistics can provoke a market “euphoria”, corrected finally in case of a liquidity syncope, through a general price falling as a functional crise. The generalized bad loans collection process over the international banking system (the last element of the weakness chain), together with the liquidity running will conduct toward a system crise. The banking system fundamental role in a moment of crise is to guarantee the loans and the deposits with long term values, liquidities or mortgages, not on the speculative bases as today does. A functional crise is able to transform itself into a system crise just starting from banking system weakness as the main transmission agent of a contagious need for liquidity. The immediate solution for global financial system problems is to reinvent the solid credit base through banking system responsibility in according their capital to fundamental values with no interference with derivates market or generally with financial short term market, sensitive to speculation. The Basel II Accord should approach more profound the capital structure from the isolate perspective of banking system itself as loan and deposits cautioner not like a speculator of 281 Knowledge Based Organization 2008 International Conference investors’ money. The return to the financial basis theory about the primordial role of banking system is the most important pace toward simplicity as a requirement into a global world. Between real economy and speculative dimension of financial markets exists, like a connection interface, the banking system governed by central banks. So first, for improving the crise prevention and response, we need a coherent trilogy, separately identified trough three distinct level of market action, market governance and policy framework, as follows: <“International Banking System” ↔ “Central Bank System” ↔ “International Financial Institutions”>. These three systems working together could assure the stability of international financial system better than are doing for now on global level. In this perspective the operational actions could be attributed to the International Banking System (“healthy” returned to the primary value of credit), the governing policy should be assigned to a possible Central Bank System, the entire mechanism being harmonized from political point of view by the international institutions architecture as a cautioner responsible for global equilibrium.
References [1] Aglietta M., “The International Monetary Fund and the International Financial Architecture”, C.E.P.I.I. Paper Work No. 08, pp. 56-81, 2000. [2] Aviram A., “Regulation by Networks”, Chicago Working Paper Series, pp.67-73, 2003. [3] Levine R., “Finance and Growth”, N.B.E.R. Working Paper, pp.11-37, 2004. [4] Merton R., Bodie Z., “The Design of Financial System”, I.M.F. Working Paper, pp.10-45, 2005. [5] Popescu I. [et al.], “Globalization. Myth and Reality”, Economica Publishing House, Bucharest, pp.132-164, 2004. [6] Stiglitz J., “Making Globalization Work”, Penguin Publishing House, pp.34-38, 2006. [7] Teunissen J., “The Management of Global Financial Markets”, FONDAD, Hague, pp.31-43, 2000.
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EVOLUTIONS AND PERSPECTIVES ON ROMANIAN LONG TERM FINANCIAL INSTRUMENTS
Asst. Prof. Ec. Popa Daniela
Romanian-German University of Sibiu, [email protected],
Abstract The long-term financial instruments of the capital market are not homogeneous. This heterogeneity reflects the different role of the capital market in the financial system. While the money market exists to provide liquidity adjustment vehicles, the capital market provides an efficient means for channeling savings into investment. These capital markets instruments vary widely in terms of credit risks, market or interest-rate risks, liquidity, and other characteristic. In addition, they are used by market participants for a variety of purposes including bonds issued by corporations. This paper concentrates on corporate bonds issued on Romanian market and on the enormous changes that have been occurring in Romanian market in recent years. Most of external funds rose by Romanian companies stem from debt rather than equity. There are many reasons for this reliance on debt as an external financing source, but two in particular stand out. First, interest payments on corporate debt are tax deductible, whereas dividend payments on equity (either preferred stock or common stock) are not. This difference sharply reduces the effective cost of debt as compared with the cost of equity. For example, assume that both debt and equity have a pretax cost of 10% and that the company’s tax rate is 16%. The second reason for the dominance of debt financing relates to inflation. With debt, companies take on the commitments to repay a fixed amount of money. These fixed nominal payments become a smaller quantity of real money with inflation. Dividend payments, on the other hands, generally tend to be set at a roughly constant proportion of total earnings. The emerge and development of the capital market in Romania after 1995, placed great strain on the functioning of the capital market in general and the debt portion of the capital market in particular. Still, the Romanian capital market had evolved and adapted and will continue to serve as an integral and essential part of the financial marketplace.
Keywords: bonds, capital markets, financing, investors
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A corporate bond represents a contract whereby the issuer (the corporation) agrees to pay interest at specified times and to repay principal at the maturity date of the bond. The bond itself may have a number of different characteristics. Some bonds have claims on specific assets of the issuer (usually land and buildings, in which case the bonds are referred to as mortgage bonds). Debenture bonds have claims not on specific assets of the company but only on general creditworthiness of the issuer. In Romania, bond issues are debenture rather than mortgage bonds. The security for the bond, as well as other aspects of the issue, is specified in the indenture. This agreement states the rights of the lenders and the obligations of the borrower. Enforcement of the indenture is under the control of a trustee (generally the trust department of a commercial bank). The corporate decision to issue bonds depends on the rate of expansion of assets, particularly fixed assets, and the availability and costs of alternative sources of funds. The rate of expansion of assets determines the need for funds. In periods when amounts of assets are growing rapidly, either because of a rapid expansion of assets measured on a constant basis or because of rapid price inflation, corporations need large amounts of funds. Although some of the needed funds may be available internally through the retention of earnings, the growth of assets usually requires the injection of external funds, either debt or equity. Corporate financial managers must determine the proportion of funds to be provided by short-term debt, long-term debt or equity. Most of external funds rose by Romanian companies stem from debt rather than equity. There are many reasons for this reliance on debt as an external financing source, but two in particular stand out. First, interest payments on corporate debt are tax deductible, whereas dividend payments on equity (either preferred stock or common stock) are not. This difference sharply reduces the effective cost of debt as compared with the cost of equity. For example, assume that both debt and equity have a pretax cost of 10% and that the company’s tax rate is 16%. The after tax costs of debts is then only 8,4% (10%-0, 16*[10%]), whereas the after-tax cost of equity is 10%. The second reason for the dominance of debt financing relates to inflation. With debt, companies take on the commitments to repay a 284 Knowledge Based Organization 2008 International Conference fixed amount of money. These fixed nominal payments become a smaller quantity of real money with inflation. Dividend payments, on the other hands, generally tend to be set at a roughly constant proportion of total earnings. Comparatively with other countries from Central and Easter Europe, Romania started to issue bonds much later. The reason for this delay could be regulation – Act no.189/1998 which allow the local administrations to use the capital market for borrowing funds and which was adopted only in October 1998, after which the local authorities needed another 2-3 years until the idea of bonds issued in national currencies will be understood. Corporate bonds often pay higher rates than government or municipal bonds, because they tend to be riskier. In theory, bonds are traded on major exchange and offer the opportunity to invest in a variety of economic sectors. Within the broad spectrum of corporate bonds there is a wide divergence of risk and potential yield. Corporate bonds can improve the diversification to an equity portfolio as well as diversify a fixed income portfolio of government bonds or other fixed income securities, have the potential to provide a steady income and are often more liquid than other securities. The first corporate bonds were issued in May 2003 and general information concerning them is presented in table nr. 1.
Nr. of Value issues Nr. of Nr. of outstanding Year traded million million issues bonds at BVB RON EURO [1] 2003 2 1 4,98 ian.00 49800 2004 5 1 190,25 46,95 20000 2005 2 0 103,08 28,45 15000 2006 6 2 561,79 159,4 892922 Total 15 4 860,1 236,12 975735 Source: www.kmarket.ro Table 1 - General information concerning Romanian corporate bonds
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The evolution shows that in 2006 were registered the highest value and the lowest one was in 2003. Compared with the municipal bonds issued in Romania, the corporate bonds have a higher value, especially in the last years. All these happen because nowadays more companies tend to appeal to this type of long-term financing. One reason this way of lending is preferred is because the corporate bond issues reflect, in part, the capital markets’ demand for financial instruments for investment, resulting in lower borrowing costs for corporations and municipalities then could have been achieved by bank lending. Banks bonds are listed at BSE (Bucharest Stock Exchange) and the total value is 221 millions Euros. Every time, the initial offers were over-subscribed. But the banks had a real problem in insuring financial resources in RON on long term, because their clients (the main suppliers of funds) had an obvious inclination to shorter the terms of deposits. So, the bonds issues are the easiest way to ensure financial resources in local currency. Being listed at BSE the investors could transform easily the bonds in liquid assets, as cash, while the banks had the possibility of maintaining the attracted resources. Other banks as well are planning to issue bonds in the near future. Last year, only one bank issued bonds and the bonds were denominated in US dollar, while the last year’s rate of the interest decline. It was “Transilvania” Bank. The most part of the bonds were purchased by the International Financial Corporation ( IFC - the investment division of the World Bank). In all the cases the bonds in local currency had the interest calculated as BUBOR plus 1%. Also, “European Drinks”, a very large company in bottling drinkable liquids, had asked the EBRD (European Bank for Reconstruction and Development) for a loan in value of 195 millions Euro and sold bonds. This loan will increase the group’s operations by financing long- term investments. The decision to financing through bond issues is very important for every company. The advantages over the bank loans are considerably large: the issuing costs are lower, and the interest rate is fixed. In Romania, there are not many companies that use this financial instrument. BCR (Romanian Commercial Bank) bought by Erste Bank of Austria will sell through BNP Paribas and ABN AMRO 286 Knowledge Based Organization 2008 International Conference
Bank Holland euro-bonds in total value of 300 millions Euro, with three years maturity and 7,25% annual rate of interest.Two third of the bonds were acquire by foreign investors. The foreign issuers continue to develop the market of RON bonds, while the Ministry of Finance would still not say clearly when the issues of government securities should be resumed. Citigroup Romania arranged and placed a bond issue in RON (the equivalent of 28 millions Euros) for Dexia KommunalKredit Bank at the end of the year 2006 [2]. The issue, worth of 100 millions RON was placed in full, and the investors, mostly insurers, were domestic companies. The bonds with a five-year maturity bear a fixed interest of 7% per annum. Dexia KommunalKredit Bank is an Austrian bank that focuses on funding municipalities and is part of the Belgian Dexia Group. ABN AMRO brokered a bond issue in RON for the World Bank in August 2006. The issue was worth 525 million RON (148 million Euros). These issues are practically “tailor made” solutions, arising from the demand of the customers that need investments in low-risks fixed-income securities to achieve a balanced portofolio. This is particularly true for insurance companies. Dexia KommunalKredit is rated “AA2” by Standard&Poors rating agency, while the World Bank was rated “AAA”. These bonds were issued at a fixed rate of 6,5% and with a three years maturity. Foreign issuers are this way providing benchmark prices for two maturities, and the official of the World Bank hinted they could come back with more issues, for different maturities. All this happened because Romanian Ministry of Finance is still analyzing the opportunity to modify the law so as to be able to issue bonds even when the Treasury is witnessing excess liquidity, based on the deficits expected for the future. Last bonds issued by Finance were in September last year, and the promise of building a yield curve is yet to materialize. Besides insurers, the securities released by foreign issuers, with high rating, are also attractive to non-resident investors, who can benefit from the still high interests on the domestic market and from RON’s appreciation trend. The Canadians at Toronto- Dominion Bank have opened this market, having brokered two such issues for foreign issuers. These operations meet the need for cash of various institutions and the demand for investments in currencies of 287 Knowledge Based Organization 2008 International Conference the emerging markets from some investors that have conservative risk exposure policies and could not enter the domestic market directly. The Austrian government sold bonds worth 100 millions Euros, with a two-year maturity and a 5,75% fixed interest in April 2006. Shortly afterwards, the Canadian brokered another bond issue for the German financial group KfW Group, which sold bonds in RON at a 6% yearly interest in summer 2006. Financial market was created and is working for two types of entities: those who have the financial resources, and those who need these resources. Until now were created mechanisms and relations, instruments and possibilities that could transfer the financial resources from the entities that have these resources to the ones who have not. Financial market offers to companies in need of long-term financing two possibilities: to apply for a bank loan or to issue bonds/ shares and offer these values to potential investors. If the company will sell to the public, it will become a public - owned company. Such company will have a large access to financial resources, because it offers a good transparency and credibility to the investors. By obtaining these funds through bonds issuing the costs of interest is lower than a bank loan’ interest. For instance, while interest payment are compulsory in the case of bank loans, the company do not have to pay dividends for the share, or could choose a lower dividend/ share. Or, the costs for bonds issue could be more realistic and precise appreciated as a bank loan. In Romania, companies could issue bonds in value of ¾ of their original capital. The bond should have equal value and should give the all owners equal rights. Bonds could be issued in material form, on paper, or in non-material form. When the bonds are issued in non- material form the issuer should follow the law number 297/2004 [3] regarding capital market. Any company that issues bonds has to follow the law and therefore become a public company. And all the financial and other information required for to be listed at BSE has to be provided. The issuing of the bonds could be decided by General Assembly of the owners. And if the bonds will be transformed in shares, the owners could not be included in this change. Bonds are offering to the owners some special rights: to receive the interest, to receive the initial amount at the due term. But they do not have the right to control the company. In case of bankruptcy, the bonds owners 288 Knowledge Based Organization 2008 International Conference have priority of receiving the amounts of money they put in; the shares’ owners are the last to receive some money. The Romanian corporate bonds value evolution will be presented in the figure below. Mostly all financial companies are issuing corporate bonds on Romanian market. And why not? Given Romania’s adherence to the European Union, the circulation of capital will become more efficient, and international capital will be cheaper and easier to obtain. This event will boost Romanian companies to trust more the forms of the long-term financing instruments, such corporate bonds. After the research made in this paper, it can be observed that the Romanian bond market looks more alike to the United States market, than to the European one. This is because the municipalities bonds (or munis) on the Romanian market are not so well traded compared to the corporate sector. Still, Romanian bonds market is underdeveloped and has a low liquidity, even if in 2006 IBRD has issued international bonds, with a total value of 526,57 million RON. The principal factors that retain the bonds market to this level are: • Lack of rating on the Romanian market; • Lack of a yield curve, which on the Romanian market is relatively substituted by BUBID and BUBOR; the only problem is that these two are not used by everyone. • Starting with the year 2005 and after the bonds market development in 2004, the banks began to target the municipalities as their own customers and began to offer better credit conditions; as a result the number of bonds started to decline. The experts estimate that the number and the worth of issues will climb in the few years ahead and bonds will have a yield higher than that of bank deposits, and so institutional investors will shown much interest in them. City halls, whose financial strength comes from local taxes, guarantee that the money invested plus the interests will be paid back to the investors. We could expect the yield of municipal bonds to stand at 8%, while banks generally pay now 5-6% worth of interests to deposits, on average. If the question “Which are the facts that could
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180 159,40 160 140 120 100
Value 80 60 46,92 40 28,45 20 1,32 0 2003 2004 2005 2006 Year
Figure 1 Romanian corporate bond evolution
favor the development of the primary and the secondary bond market in Romania?” would pop up, the answer would be the following one: on every market one can find two main actors, the buyers and the sellers, and when the issuers will be able to develop their own financial and economic system, the bonds’ value and bonds’ maturity will grow. But the most important fact for the Romanian capital market is to grow the number of important investors with a long-term thinking. Without these important investors, the Romanian market would soon reach its limits.
References [1] BVB is the abbreviation for Bursa de Valori Bucuresti, or Bucharest Stock Exchange. [2] Ziarul Financiar nr. 2015/ 17.11.2006. [3] Legea 297/2004 privind piaţa de capital, Monitorul Oficial al României nr. 571/29.06.2004.
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ASPECTS REGARDING SAVINGS MANAGEMENT AND ITS INVOLVEMENT IN LONG TERM FINANCING
Asst. Prof. Ec. Popa Daniela
Romania-German University of Sibiu, [email protected]
Abstract After a long period of time when the involvement of Romanian public for savings was under the preoccupation for credit, the lower rate of inflation and the various offers of the banks for saving accounts, led to deposits revival. Even the companies are save more than the population, (and it is a paradox) the gap is filled month after month. A big change was in the banks attitude, which offer more then credit now, and are concentrated on savings. So, have appeared in Romania various products for savin-with investment components and other products packages that are linked to a deposit. We can observe that the percentage of total population and companies savings in Gross Domestic Product is still low comparing to the EU, but in 2007 the saving are developed. This paper tries to enhance some essential aspects of saving in EU and this influence over the development of this source of long time financing in Romania.
Keywords: Financial instruments, banks, saving management, long term financing
The most advanced of European Union state from the point of view of the population access to the banking services is Holland, with 100% of population got access to banking services, followed by Finland, Denmark and Luxemburg, with 99% or Belgium with 97% as we could saw in the following picture (picture 1.1.).
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In Central and Eastern Europe, percentage of population with access to the banking services is Hungary with 66% and Bulgaria with 56%. Banks are competing not only with themselves, but also with non banking institution. In Mirkin’s opinion, there are the following important base directions on financial market [1] :
1. A pregnant competition for operation volume and role distribution: So, in a market economy, credit had a diminishing role as financial source, and the importance of bonds and stocks issue will grow. This factor provides greater potential for non banking institutions. In our opinion, banks can diminish this competing risk through creating an internal securities division. There it will appear a strong competition inside the bank between credit and securities division for operations, giving management alternatives for investment free financial means.
Bulgaria 56
Ungaria 66
Belgia 97
Luxemburg 99
Danemarca 99
Finlanda 99
Olanda 100
Picture 1.1 EU population access to banking services (%) [2]
2. Competition for gaining financial resources. Securities are a vigorous alternative to the bank deposits, as a form of increasing population and companies’ savings. And we mean, first of all that investors preferred to invest especially in high liquidity securities, instead of deposits. And we think that banks could maintain resources base through emission of own liquid financial instruments such as: monetary assets, bonds, equities and debentures, and so increase the number of investors. 292 Knowledge Based Organization 2008 International Conference
3. Competition for financial services on the market. In this competition, banks have some advantages: ¾ Financial stability and activities diversification; ¾ Great possibilities in offering guaranties for financial instruments; ¾ Using front office for offering and selling financial instruments; ¾ Qualified and professional personnel.
4. Competition in financial instruments issuing. As banks, non banking institutions are big entities, which draw financial resourcea by issuing financial instruments. So, this financial market could became very competitive.
5. Competition in other sectors of financial market, as follows: ¾ For consulting in mergers, acquisitions, divisions; ¾ For making of organization system in capital transaction; ¾ For making associations, unions and institutions; ¾ For creation market information structure. Among major factors linked to the operational environment, the most important differences are seen between EU countries in the field of banking intermediary. Now, medium rate of credit in GDP is around 36% in new EU countries, representing less than 1/3 of the rate from “old” EU countries.
70% 65% 60% 56% 50% 45% 38% 39% 39% 40% 31% 30% 22% 23% 18% 20% 12% 13% 13% 9% 11% 10% 0%
a a ri a ia o e ni ipru rca vacia ga ued ani l Malta S C it ituani Esto a eur r Polonia România Slo Ungaria L Bu Letonia on B nema Z a ea D ar M
Picture 1.2. Growing credit rate for private sector in EU countries, 2007 [%][6]
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Due to the fact that new EU countries have been confronted with a strong recession, a lowering production and a diminishing demand for credit. The low level of intermediate in local banking system could be explained also because it competes with international financial market. More, by reducing the interest rates and the development of banking culture have strong consequences on growing non-banking savings.
250
200 200
150 140 128 130 126 130 100 77 80 59 63 64 65 50 49 47 49
0
a ia a a a o e rca onia gari toni oni Cipru tani ovaci ngar s Malta Suedia a eur ri Pol Sl U Lituania Bul E Let n B România o anema Z ea D ar M
Picture 1.3. Credit in GDP in EU countries, 2007 (%)[7]
We could also see that in the middle of old members credit rate in GDP is lower in Finland, Greece, France and higher in Holland, Ireland, Denmark, Portugal and Germany, comparing with a medium value. In 2007 growing credit rhythm of private sector stayed at a high level in all non euro EU countries. At the end of 2007 this level stabilised due to the higher rate of interest. Still, it grows in Bulgaria, Lithuania and Poland . The expansion of credit was pronounced in countries with a growing rate of development, such as: Baltic states, Bulgaria, Poland and Romania, where the level was between 32% and 62%. In Cyprus, Hungary and Slovakia the level was between 19% and 29%. This dynamic implies a risk because of a internal high demand and through this an excessive internal and external unbalance. More, big credit in other currencies than local is a problem in some countries. After a long period of time when the population concern for saving was below of the credit, in Romania, the lowering inflation and
294 Knowledge Based Organization 2008 International Conference the large bank offer improve the deposits [3]. Even the companies save more than population, the difference is diminishing month after month. A big involvement have banks, which stop aggressively promote credit products and increase the saving ones. Thus, on market have appeared deposits with investment component and package products linked with a deposit. The percentage of savings in GDP appears in picture above, and we saw that saving rate has grown. At the end of January 2008, population savings in current accounts were 27,58 mld. lei (7,4 mld. euro) comparing with January 2007 it is a growth of 98%. 94
67 63 59 56 51 46 42 32 28
Zona euro Croaţia Cehia Slovenia Bulgaria Slovacia Ungaria Polonia România România 2006 2007
Picture 1.4. Percentage of savings in GDP (%) [4]
Most wanted are savings accounts in local currency (18,3 mld. lei, double than last year). Same products in euro grown with 120%, but with a smaller base. The reasons are monetary policy rate of Romania National Bank at 9% (in January, 10,75% in September) and so the banks are very interested to attire savings from population, even offering bigger interest rate. This was in fact the reason for Romanian people to avoid until now to deposit. A long period of time, yields were under the inflation [5]. The difference was covered from one’s pocket, and the client loose money. In July 2006 something changed, and from there interest rate stayed over the inflation, even 3%. It is sure that saving depends of the population revenue, and in EU the disparities, still moderate, are growing fast. And in Romania people living in Bucharest gain less than Europeans with 54%. But in comparison with revenue at national scale, the difference is in favour 295 Knowledge Based Organization 2008 International Conference for those living in Bucharest, which gain twice than the rest of the country. The difference with te poorest Romanian regions is astonishing : 140%. Banks clients need various needs, necessities and demands. An so bank have finally understood that it must enlarge their portfolios of saving products. Market analysis [8] shows the tendency to create a large portfolio of saving and investment products, due to the rising of buying power and the willingness of invest more. Romania is the only country in Europe where companies save more than population. This happened in Hungary too, before the EU, and then the integration lead to the alignment of banking system at European demands in which banks could not more ignore saving products. In November 2006, in Hungary [9] population had save 5688 mld. forints (22 mld. euros) and companies saved only 3560 mld forints (14 mld.euros). Even in Bulgaria, country economically comparable with Romania, population deposits (13 mld. leva) overcome companies’ (8 mld. leva). In the EU developed countries the disparity is even higher. Savings problem had became a very serious one for Romania, while consume grows skyrocket and banks did not succeed to attire enough long term resources. A BNR study [10] shows that population give up to save and put a very strong pressure on financial development. “High level of spreads in case of population elevates an important problem in financial stability analysis, especially that of efficient allocation of resources in economy. Judging from the point of view of credit process it is possible to expect a modification in habit for those indebted, meaning to relinquish of resources saved for precaution and credit will had a marginal value at a concurrence of rightful amount. This habit do not promote saving process, nor financial development” shows the study cited. Term deposits are still most demanded and have been designed for medium and long saving, as a certain, but less flexible and less yields. These kind of products are guaranteed through “Guarantee of deposits in banking system fond”, the guaranteed sum being now 20.000 euros.
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Many deposits offer a fixed interest rate, which protects savings in the eventuality of negative fluctuation on monetary market. Still, the interest is taxed, from 2006 with 16%, such high rate of taxing influence the decision of save. In our opinion there are ways of growing the inclination toward investment and saving : ¾ To broaden banking offer for the population, because Romanian banks still do little for the covering of their clientele needs. When interest rate is so high, the sole stimulation could be found in services, such credit cards, invoice payments, internet banking. ¾ To promote through administrative ways savings. One strong measure could be mandatory wage and pension payments on cards. This measure have been taken in budgetary sector. The large amounts of money could so circulate through banking sector and became interest and financial sources. ¾ To encourage currency savings by accepting and legalize currency mutual funds. These funds could extend over international financial markets. The advantages are more than obvious for the currency saving, which is mostly held at home, and for the supporting external payment balance. ¾ To rapidly develop pension funds, that present in other countries major a form of investment. ¾ To create new forms of attraction of investments by developing mortgage, which can attire more liquid savings. ¾ To augment safety and to turn to account of savings and investments because Romanian people could not forget last financial crashes. In financial sector is operates Guarantees Fund, that allows the limit sum recovery for a bank with financial problems. The action of stimulating people to invest and save is not only for the rich people. The importance is to insure those means and services that bring these in action. Romanian savings are protected for bankruptcy risk. Still many of us prefer to keep the savings home. A survey [11] issued by Metromedia Transilvania shows that only 22% of Romanian people 297 Knowledge Based Organization 2008 International Conference know about Guarantee Fund, and only one in ten knows the level of protection. From January 1, 2007 the level grown at 20.000 euro, as in European Union. In Romania 99,27% of deponents are insured because the level of savings is low. Asked about the main methods of save money 29% of the subjects indicated home savings. Current accounts are used 42%, and the more secure means of keeping the saving are: 48% real estate, 10% gold, 42% deposits. Over one third answered that they could save, but the appreciation over the easiness of save differ. Saving is easy for only 23%. The majority of 52% of subjects indicate difficulties in save, and 20% could not save at all. Romania should implement a system that encourage savings by pension funds, and so, as Nobel winner Edward Prescott considers, could improve de current deficit. “Follow the example of Estonia, Ireland and Island, countries where people save for pension. Do not sustain inefficient businesses. See Denmark and US, where people leave work places where are less productive”, said the economist. Romania should diminish taxes and expenditure, and sustain the development of economy. In the light of international financial crisis we could only reckon what will happened in the future. Still, savings are a base stone for economic development, and should be stimulated in the future.
References [1] Мirkin, I.A., Valori mobiliare şi pieţe financiare, Editura Perspectiva, pp. 407-410, 1995. [2] Raportul BM intitulat „Finance For All”. [3] Iancu Adrian – în articolul „Românii redescoperă economisirea”, publicat în ziarul Curierul Naţional nr. 5030 din 26.10.2007. [4] www. erstebank.ro/stiri accesat la data de 17.03.2008. [5] În ianuarie 2006, de exemplu, dobânda medie afişată de bănci pentru depozitele atrase era de 4,79%, în timp ce indicele preţurilor de consum era de 8,89%. [6] ECB: Report on EU Banking Structure, noiembrie 2007, BRI, BCE, Eurostat, Central Bank of Cyprus şi Bank of England. Notă: Datele se referă la creditul acordat non-IFM din zona euro excluzând administraţiile publice. În ceea ce priveşte ritmul de creştere a creditului în anul 2007, s-a
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utilizat cea mai recentă lună disponibilă pentru fiecare ţară. Datele pentru Marea Britanie se bazează pe definiţiile naţionale. [7] Raportul Anual al Băncii Centrale Europene, pp. 96, 2007. [8] Pânzaru Monica – în articolul „Unul sau mai multe produse de economisire” apărut pe site-ul www .conso.ro/citeste-omentariu/13/depo accesat la data de 12.03.2008. [9] Potrivit datelor postate pe site-ul Băncii Naţionale a Ungariei. [10] www.bnr.ro, accesat la data de 10.10.2007. [11] Oanţă Daniel – apărut în articolul „UE garantează 20.000 de euro” Ziarul Cotidianul, 06.11.2006.
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THE MANAGEMENT AND ACCOUNTANCE OF THE RISKS AND PERSONNEL IN THE CONSTRUCTION ACTIVITY
TA Breuer Adela, TA Lesconi Frumuşanu Nataliţa Mihaela
“Eftimie Murgu” University, Reşiţa, [email protected], [email protected]
Abstract The construction activity is an activity known in Romania only from engineering point of view. About its management and accounting problems has not been written anything for almost two decades. Studying the construction field for my PhD title I sow allot of problems about this field that are treated with indifference not because of the people who are working on this field, but because of our accounting legislation on construction which is not adapted on the actual requests. Even if work legislation talks about work protection the management of personal is neglecting this very important problem and the accounting legislation do not includes the costs for this.
Key words: construction activity, work protection, employees
1. Introduction Management has been given a lot of definitions over the time. One of these definitions states that the term of management derives from the famous English term “to manage” being given two meanings. First of all it is a set of management, organisation and administration techniques, and secondly it is the ensemble of all the members of the board [1]. Referring to the first meaning of the word to manage, the decisional process, looked from the accounting point of view, its accomplished from accounting information, final product of
300 Knowledge Based Organization 2008 International Conference accounting, information that was initially considered “proof, memory of operations realized between merchants, which need transparency and trust” [2], and later accounting information become “a control mean for the associates/ shareholders over the enterprise” [3]. With the help of accounting information we get information for three managerial functions: planning, control and evaluation, its priority in decisional process starting from the particularities[4] of accounting information: ¾ controls the relation between incomes and expenses, assets and resources; ¾ by using the specific methods of accounting and even the communes to the other sciences, ashore the global knowledge, and on the other side analytical knowledge of patrimonial elements; ¾ accounting ensures the production batch costing and its budget, calculus of incomes, expenses and exercise results; ¾ it ensures the future economic strategies based on the results obtained in the rapport period.
2. Particularities of the management staff and work protection in construction units. In the Romanian economic context, the crossing from centralized economy to market economy enabled the economic reforms in all the activity sectors, including the constructions one. In the construction field, by its specific activity, we notice a new direction in the construction products that should respond to the multitude of performance exigencies of functional, technical, technological, economical and managerial. The instauration of quality system in constructions, through the administrative and legislative settlements, it can offer a setting for approach and resolve all this exigencies that came from user necessities. The construction activity contains the process of construction and montage execution, its result being the built object. Related to this issue, we must specify from the beginning a few specific notions that need to be correctly used and interpreted, such as “construction and montage work, object and objective” 4.
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Widely said, the construction activity is the activity that leads to the performance of investments with productive and non-productive purpose. From the investment performance cycle aspect, the construction activity contains the total of performed operations with the labour expense for the investment performance, respectively in order to change/transform the investment currency into the concrete form of the new capacity of production or of any other nature. For the performed work each employee has the right to the counter-labour conscription in cash. The salaries are established through individual or collective negotiation, between legal persons hiring persons for the performance of a certain work. The salary is established for each employee according to its qualification and its developed work, and to the complexity and the importance of the executed works. The settlings-up with the personnel contain the salary rights, increases, the bonuses handed from the salary funds, the compensations for vacations and for temporary incapacity to work, other rights in cash for the performed job stipulated in the labour contract. The salaries for the staff are the ones negotiated through the individual labor contract or through the collective one, depending on the size of the company. In the case of the construction companies as well the salaries are negotiated through a labor contract, be it individual or collective. Bonuses are attached to the pay of a directly productive employee of a construction unit as a percentage of the base pay, for: ¾ Hard, dangerous work conditions: the workers that perform at certain heights, on scaffolds, workers who dig wells, etc.; ¾ Detrimental work conditions: workers who pour pitch the ones who work with concrete, etc. These workers get each day 2 litres of milk; ¾ The activity developed in isolated areas, when the building site is placed in an area where no other buildings, shops are located, etc.; ¾ For night activities; ¾ For the activity developed in open-air in the winter period, when the temperatures allow them to work, but lower than 0 302 Knowledge Based Organization 2008 International Conference
degrees. For the winter activity, the employees also benefit from a warm meal at lunch as well as of warm drinks such as tea. At temperatures lower than -10degrees the workers benefit of a 30 minutes break every two hours plus a 1 hour lunch break. ¾ For the activities developed during the summer period at temperatures higher than 30 degrees, the employees benefit of refreshers, of 20-30 minutes breaks in cool, ventilated rooms, and if they work more than 8 hours a day, besides the payment for their overtime, they also receive another 20% from the overtime value. Besides the granted bonuses, the entire direct productive personnel receives work equipment ( overalls, protection helmets, gloves, raincoats) according to the season in which they are performing their work. All these equipments are registered on inventory objects, and their use is made through the inventory objects account, which is performed analytically to let know that it refers to an expense contained in the construction final cost. The Unique Labour Collective Contract at National Level stipulates a minimum number of 21 leave days for all employees. All employees that work on the building yard benefit of a vacation of 30- 35 days, depending on their job, and the ones performing dangerous works get three more days of vacation, according to the law. The justificatory document for the salary registration is the pay- roll. The construction companies elaborate pay-roll for each direct productive section and separately for the tesa personnel (the office staff, the board, other employed persons, but which are directly linked to the production) The same registration method, respectively on analytics, is used also in the case of contributions of the personnel and the unit to the State Budget and Social Insurance and Other Funds Budget, for the personnel which are directly implied in the construction activity. All employees of a construction unit benefit of the following bonuses: Length of service: it is given after 3 years, from 5% to 25% for a length of service higher than 20 years;
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Overtime or hours worked in the free days (Easter, Christmas, 1st and 2nd January, etc.) For fidelity( 3% ) , if the employee has been working in the respective unit for minimum 10 years; For managing functions: degree I (general manager, deputy manager, other managers) 25%, degree II (foremen, sub- foremen) 15%. All employees benefit of meal tickets as well. An extremely important element in the construction activity is the instruction of the personnel regarding the prevention of accidents, labour protection respectively. The activity field “construction” is considered a highly dangerous, even lethal field of activity because of its producer goods and the labour task, an important amount of money being monthly spent for labour protection. The evaluation sheet of the construction field is presented as follows: a. Producer goods: rule, measuring tape; steel concrete fitting; scaffold; trowel, scoop, spatula, jointing rule; hammer, tongs, rule, measuring tape, level; buckets, cement, lime, sand, mortar, concrete; bit, gypsum, brick, lime, cement; concrete mixer, boards, scaffold; seesaw with construction materials - mortar and concrete ; b. Labour task work arrival; receipt of documentation for the works that need to be performed ; mounting of fittings; casting of concrete; execution of various masonry works; execution of small reparation works; plaster and polish works; material liberation from the work areas and cleaning-up;
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c Work environment the outdoor area and not heated rooms (under 10°C) in the period October-March; circulation lines with temperature differences of over 15°C; low air temperature - under 0°C; high air temperature - over 30°C; rain, wind; slippery, inclined areas, etc.; most ground, rough ground. Depending on these three components we identify the risk factors (risk factors according to the producer goods, to the labour task and to the performer) and we calculate the risk coefficients in order to see if the normal limit of 3, 5 was overcome. In case it has been overcome, then measures must be taken in order to bring it to the normal values, i.e. under the value of 3, 5. The present accounting legislation does not stipulate an expense account for the registration of these accounting expenses, although, in my opinion, there should exist one. Firstly, a distinct account is necessary for the registration of expenses afferent to the labour protection thus one can verify if the respective company has performed the labour protection, very necessary especially in the production companies; secondly, the necessity of a separate account due to the fact that this expense is a component of the final cost of the finite product or of the performed service. (for the construction companies). The proposed account for the expenses registration with the instruction of the personnel regarding the labour protection is account 642 “Expenses with the personnel – labour protection”.
References [1] M. Capron, Contabilitatea în perspectivă, Ed Humanitas, Bucureşti, 1994. [2] Gh.Creţoiu, I. Bucur, Contabilitate. Fundamentele şi noul cadru juridic, ed. a II- a, Ed.C.H.Beck, Bucureşti, 2007. [3] M.Epuran, V.Băbăiţă, C.Imbrescu, Teoria contabilităţii, Ed. Economică, Bucureşti, 2004. [4] prof.univ.dr.C.V.Olariu, Economia si organizarea construcţiilor, Ed.Didactica si Pedagogica,1978.
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THE BUDGETING OF PROJECTS FINANCED THROUGH STRUCTURAL FUNDS
TA Breuer Adela, TA Lesconi Frumuşanu Nataliţa Mihaela
“Eftimie Murgu” University, Reşiţa, [email protected], [email protected]
Abstract The Structural Funds accession represents a goal for every private or public organization. The year 2007, the year of Romania’s adhesion to the European Union, brought and will bring, from now on, major changes in the Romanian society, one of them being represented by the possibility of Structural Funds accession. In this context, I considered necessary to explain concepts such as the budget, project’s budget, considering it the key element for obtaining a grant (financial aid) but also for a successful implementation of a project. The present work can be structured in four chapters, beginning with the budget definition, continuing with a detailed presentation of the steps which must be followed in order to obtain a well drawn budget, and at the end, the presentation of different types of budgets and of the most common errors which can occur in connection with this key element.
Keywords: financing, budget, structural funds, eligible expenses, justificatory documents
Structural Funds, two words we encounter very often, instantly rising our entrepreneurial spirit, these being actually the keywords of the entire present paper. Romania’s adhesion to the European Union brings and will keep on bringing, major changes in the Romanian society. Romania’s integration supposes costs but also benefits, one of them being the possibility to access Structural Funds, funds which will financially diminish the integrations costs. 306 Knowledge Based Organization 2008 International Conference
The unanimous will, at the level of local administrations as well as that of SMEs sector, is that of obtaining the finance of different projects, i.e. the increase of the absorption degree of Structural Funds. In the above mentioned context, we considered as relevant the approach of the project budget notion, being considered the key- element for a proper project finance and implementation. The field of European finances is a large one, and for this reason our present paper tries to focus on one very important aspect, that of elaborating the project budget that will be financed from the Structural Funds, i.e. from the European Social Fund. The budget of a project represents a “picture” in which the costs necessary for the project activity development are presented. In a broader sense, the budget of a project can be considered a planning of a project from a financial point of view; it could be described as a “plan of action”. In financial terms, the budget assigns a value to the activities, services and operations planned in the project. The preparation of a detailed and realistic budget allows a clearer image of the resources necessary for achieving the project objectives. Thus, the budget assigns the financial value to the project activities, the general planning of the project, “going hand in hand” with the general one. Also, the budget represents an important control of the project’s financial resources; any deviation must be taken into consideration. The project budget represents the total of the needs and financial availabilities for the proposed project. The elaboration of the budget supposes more logical steps. Initially, information are gathered about what the companies would like to create, what the limits are and what internal land external influences may affect it.
Stages in the budget elaboration: 1. Planning of the project activities: This stage takes into consideration on the one hand, the period stipulated for the development of the project, as well as the activities that must be developed (as detailed as possible ex. Acquisition fax, building modernizing) for the project implementation. If this determination is well performed, then the preparation of the budget will be easier and of higher quality. 307 Knowledge Based Organization 2008 International Conference
2. The detailed estimation of expenses for each activity and subactivity: The activity plan is the starting point for this stage, representing an important phase in the budget elaboration, the expenses afferent to a project being classified as follows: • The personnel expenses – the salaries of the personnel implied in the project are expressed either in percentage, as part of their annual salary, depending on how much time they invest in the project, or by the hour, depending on how many hours they allot the project. These costs can include the gross salaries together with the legal taxes and the contributions to the budget that the organisation is paying for its employee. It is important to mention the figures from the accounting books, because in many cases, the evaluators may require the proof for the salary payments and contributions to the social security. The project manager calculates the real personnel costs afferent to the project by multiplying the cost unit for each team members with the number of hours or days he will be working for the project. For example, if the annual salary of a project team member is of 24.000 lei, working 60 hours for the project, then the salary per day will be of approximately 110 lei (24000 lei/220 working days), and the project salary (60 days * 110 days) will be of 6600 lei. We need to mention the type of specialists or functions necessary for the project implementation and the method of calculating the allotted sums. If there is information about the persons involved in the project, then their names and resumes must be also mentioned. There are cases when the project description does not contain the names of the persons who will be involved in the management team, only their experience, but the project manager must create a profile of the project team. The personnel costs for the team which is not directly paid by the applicant or by the partners will not be eligible within this chapter, and the invoices paid to a human resource company, with temporary employees working for the applicant or the partners, will be included in the chapter “costs related to the project management”. A problem occurs within this category of expenses, the determination of remuneration for each employee implied in the 308 Knowledge Based Organization 2008 International Conference project. The salary should reflect the contribution, the responsibilities and the competences necessary to develop a certain job within the project. • Transport expenses – accommodation, distance in kilometres, plane tickets, meals, taxi, rented cars, these include all the costs related to travel being part of the project activities. The applicant’s Guide must be read very carefully in order to exactly determine the eligible expenses within this chapter. The travel costs and per diems are adjacent to this expenses category, and in order to be eligible, they must be linked to certain activities and also described in the finance application. • Contractual expenses – any contract services such as rentals, rents, consultancy costs, entrepreneurs, software licences and training; • Construction or restoration – the real costs of the construction and restoration materials – architecture or entrepreneur costs which normally appear in the contractual expenses; When elaborating the budget and later on, when developing and implementing the project, we must take into consideration the fact that the equipments must have origin certificates from the European Union Member States; • Expenses for publication and documentation – reference materials, training materials, software. Most programmes allow expenses related to the publication of brochures, manuals, specialised CDs, including the translation costs; • Expenses for consumables and inventory objects – stapler, filing machine, mail costs, copy paper, pens, CDs, crayons and clips etc.; • Equipment costs – they include: furniture, computers, copying machines, faxes, laboratory equipments and communication system (known as expenses type FEDR); • Indirect costs – light, heat, space, air conditioner; for these; we cannot define exactly the value of their expense. Generally, a percent is accepted from the direct eligible costs of the project in a quantum of 7%.
3. The estimation of potential income sources:
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In the finance application, the applicant will mention if the project generates incomes or not. The European Union Commission includes in the category of incomes the cash contribution from the applicant’s resources, the contribution from any other provided sources (donations from individual persons, contributions of the associates, sponsorship), any income generated by the project (the money obtained from the sales in the on-going project), as well as the existing patrimony or resources. The size of the applicant’s own contribution, as well the eligibility conditions of the expenses will be taken into consideration in the determination of the project budget. The co-financing rate differs from one programme to another, but also depending on the applicant’s nature (it can be 50%, like in the case of the SMEs, and may reach 95-98% for the public administration authorities or the NGOs). 4. Reconciliation of differences between expenses and incomes: Usually, the expenses are higher than the available resources, thus the value of the estimated costs must be analysed in order to determine possible reductions for the established budget. 5. The cash flow creates an image on the amount of money necessary for the payments, regarding their quantum as well as the period in which these payments must be performed. This flow must be created in order to avoid the situations in which the project cannot be implemented due to lack of resources, being known that within the Structural Funds, the eligible expenses are subsequently returned; there exists only the possibility of pre-financing but only in cases stipulated by the law. 6. The approval of the budget by the executive/directorate of the institution. 7. The set-up pf a procedure of permanently supervising the costs compared to the budget, after the project has started. Using the standard format, this stage must perform an objective analysis on the causes that determined the differences between the sums stipulated in the budget and the value of incomes at a moment during the project implementation. This analysis should be performed monthly or at least once in three months.
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8. The periodical revision and up-date of the budget (the spent budget, the budget that will be spent for future actions, overestimations of the costs). The evaluators pay special attention to the budget, looking for explanations for the costs in the project description, trying to determine the efficiency and efficacy of the project, two desiderates of any activity. According to the new legislative stipulations related to VAT, this tax is a non-eligible expense, thus when the budget will be elaborated, the costs will be registered without VAT. In 2007 the decree 29/2007 was adopted regarding the allocation of structural instruments, pre- financing and co-financing assigned from the state budget, including the National Development Fund, in the budget of institutions implied in the administration of structural instruments, a normative act which suffered modifications, in June 2007, through the decree 19/2008. Thus VAT will be endured by the state (national contribution) because from the EU contribution we cannot deduce the sums afferent to VAT except for highly particular situations difficult to prove by the beneficiary. If, initially, these stipulations referred to the local public administrations and NGOs, in the meantime they have expanded to the cult institutions as well. It is likely that the financer does not offer the total sum that the applicant considers necessary when elaborating the project. There could be several reasons: either the action with the associated cost was not properly explained, or the necessary fund was not correctly calculated, or the financer considered that the proposal was good, but the sum was too high. For the improvement of the estimation process of the expenses we indicate: ¾ The use of software specialized in previsions; ¾ The inclusion of a margin that ensures the actions flexibility; ¾ The hierarchy of objectives. The justification of the budget explains the budget expressed in figures, respectively, the necessity of the respective cost in the context of activities implemented in the project. It also explains the final sums introduced in the budget categories and eventually, the calculating method.
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As regards the mistakes frequently encountered in the budget elaboration, we mention the following; • The filling-out/in of all form column (only the lines necessary for the project activities implementation must be filled out); • The budget supervision (the money that were not spent must be returned to the financer or, through special procedures, they must be reassigned on the budgetary lines where they are not enough). The section “Costs eligibility: costs that can be taken into consideration for the grant” from the Applicant’s Guide indicated the costs eligible for financing. The applicants should not have overestimated the costs in order to obtain a bigger financing. • The budget undervaluation (the beneficiary must be aware of the difference it he wants to reach the proposed objectives); • The requested budget does not situate within the limits of the grants or of the project co-financing percentage. The upper and lower limits of the budget are specified in the Applicant’s Guide. • Incompatibility between the budget and the methodology. The methodology and the actions – the activities presented by the applicants should have been compatible one with another, according to section “Methodology of project implementation and management” from the Applicant’s Guide. • Arithmetical errors in the budget calculation. The applicants justify the sums they demand in the section “Budget justification” from their finance application. • When elaborating the budget, it was not taken into consideration whether the price from the used offers contains the quota VAT (in the stage of the project implementation, it can be determined, that, for example, a certain product costs more than the budget predicted because initially, they didn’t take into consideration the fact that the price from the offers did not include VAT); • The allotment of time sufficient for the budget elaboration, not respecting all its elaboration stages. We can conclude, by drawing up a few main characteristics of the project budget: 1. the budgets quantify activities – i.e. they confer the value in money;
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2. the budgets direct the expenses so that the resources can be spent only for activities related to the project objectives; 3. the budgets identify what resources are necessary and which ones are required; 4. the budgets allow the examination of project objectives and activities from the point of view of their actual cost; 5. a realist and up-dated budget permits the financial evaluation of the project. The new socio-economic context determines the Romanian organisations (local administrations, NGOs, but especially the private sector) to learn how to access grants, thus they can be possible beneficiaries of these funds, but once with Romania’s integration in the European Union, our country has entered in a competition to attract these funds with all the other member countries; thus it is essential to have knowledge and to be very well informed about the project budgets, this being one of the key elements of a successful project.
References [1] Manolescu Irina, „Managementul proiectelor”, note de curs, Universitatea „Alexandru Ioan Cuza” Iaşi, 2005. [2] Stancu Ion Obreja, Laura, Ciobanu Anamaria, „Managementul financiar al proiectelor”- suport de curs în format electronic. [3] Stăiculescu Camelia, Mogoş Gabriela, „Solicitarea cu succes a fondurilor europene”, Editura Forum, Bucureşti, 2007. [4] *** „Instrumentele structurale ale Uniunii Europene”- suport de curs realizat în cadrul proiectului de înfrăţire instituţională „Întărirea capacităţii UCRAP şi a reţelei naţionale de modernizatori”, Reşiţa, 2006. [5] *** „Diagrama Fondurilor Structurale”, 2006. [6] *** „ABC-ul Fondurilor Structurale pentru administraţia publică locală”, 2007. [7] *** Ordonanţa 19/2008 de modificare şi completare a Ordonanţei 29/2007. [8] *** Ordonanţa 29/2007 privind modul de alocare a instrumentelor structurale, a prefinanţării şi a cofinanţării alocate de la bugetul de stat, inclusiv din Fondul Naţional de Dezvoltare, în bugetul instituţiilor implicate în gestionarea instrumentelor structurale.
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BUSINESS ETHICS
TA Ciurea Jeanina Biliana
”Eftimie Murgu” University, Reşiţa, [email protected]
Abstract Ethics is defined as the discipline that systematically studies the principles of moral behaviour and motivation. Business ethics is the particularization of ethical analysis models and contains ethical problems that concern the immediate activity of companies (the relationships between the employer, the employee, the suppliers, the business partners), but also the larger context in which they operate (the companies' relationship with the local community, the society in general, and last but not least, managing the influences of business activities on environment).
Keywords: ethics, business, business behaviour.
Ethics is thus the main cause of success or failure of an organisation on the market, one of the criteria consolidating or destroying its reputation within the business environment where it operates. The universal values are represented by a set of ideals we suppose should be shared by all persons, irrespective of culture or country of origin. Among the universal values, the most frequently mentioned are honesty, responsibility, integrity, care and respect for the others, courage, excellence that should characterise the actions performed. Each of us nevertheless has certain values and principles guiding both our decisions and our actions. Family, the society in which we live and culture are the three elements playing an extremely important part in the formation and evolution of these ethical values and
314 Knowledge Based Organization 2008 International Conference principles permanently modelling our conduct, and this “world ofvalues” is rarely free of conflicts. Ethics puts the principles into action, and as the values to which people adhere to are not always those they declare to adhere to, the ethic behaviour is not always the most convenient either. Fortunately, not all the definitions of business ethics are so “profound” and lengthy. According to Laura Nash: „Business ethics is the study of the manner in which the personal moral norms are applied in the activities and purposes of the companies. It is not a separate moral standard, but the study of the way in which the context of business raises before the moral person, acting as agents of this system, its own specific problems”. A shorter definition is suggested by Andrew Crane and Dirk Matten in a very recent significant treaty entitled “Business Ethics. A European Perspective”: „Business ethics is the study of business situations, activities and decisions in which questions are raised in connection with what is right and wrong. But the great majority of those who write about this domain do not attempt to formulate an explicit definition of business ethics, and suppose that the intuitive meaning of the set phrase as such is sufficiently clear, so there is no need for any further pedant academic clarifications. Or, this supposition is not entirely correct either. We easily remark that “business ethics” is a compound phrase whose meaning may be intelligible only to the extent to which the uninformed reader knows the meaning of “ethics” and of “business”. On this condition, it is easy to understand that, along medical ethics, legal ethics or bioethics, business ethics is an applied ethic theory in which the concept and methods of ethics, as general theory, are used in approaching the moral ethics specific to a certain domain of activity, such as medicine, justice or business. But what is the meaning of the word “ethics”? The sociologist Raymond Baumhart raised this question before several American businessmen and received the following typical answers: „Ethics deals with what my feelings tell me is right or wrong”. „Ethics is connected to my religious faith”. „To be ethical means to observe the law”. "Ethics represents the behaviour models accepted in society”. 315 Knowledge Based Organization 2008 International Conference
"I don’t know what this word means”. None of these answers is correct (except the last one, obviously). Many people are tempted to associate ethics and feelings, mainly thinking about a sort of empathic vibe towards their fellow men. But ethics is not necessarily linked to certain affective states. These are changeable, capricious, an not fully subjected to reason, so that very frequently those very feelings push us to deviate from ethical norms: to passionately love our friend’s or boss’ wife, to envy those who are somewhat superior to us, to detest some people only because they belong to a certain stigmatised social category etc. Ethics is not in a necessary relation with religion either. Evidently, most religions support high ethical standards. But if ethics were only an appanage of religion, it would be valid only for religious persons. Or, ethics addresses equally to atheists and saints, so that it cannot be assimilated with religion, nor totally subordinated to religion. Moreover, behaving ethically is not the same with obeying the law. Frequently the law incorporates certain moral conceptions, shared by numerous citizens of a state. But the law, like the feelings, can deviate from what is ethical. The bondage of American Negro slaves before the Civil War, the apartheid policy in South Africa or the discrimination of women in Islam fundamentalist countries offer grotesque examples of inhuman social relations, imposed through the force of certain “laws” that are unacceptable from the ethical viewpoint. Last but not least, being ethical is not the same with fully complying with certain behaviour model accepted in society. In many cases, most people truly cultivate just behavioural patterns from the ethical perspective, but not always. Sometimes, these social behaviour models can be in conflict with ethical principles. It may happen that an entire society be morally corrupt; the Nazi Germany, the Bolshevik Russia or the Ceauşeşcu’s Romania (and unfortunately, the post- Ceauşescu Romania too) are examples in this respect. On the other hand, if behaving ethically were equal to imitating accepted social models, then in order to know what is correct from the ethical point of view the individual should find out what is considered acceptable in the society he / she belongs to. Consequently, in order to know what 316 Knowledge Based Organization 2008 International Conference would be acceptable to think about abortion or euthanasia, one should perform an opinion pool at the level of the Romanian society and then we should comply with the majority opinion. But no one tries to find the solution to an ethically controversial subject this way. Moreover, the lack of a full social consensus makes it impossible to identify what is considered acceptable in a certain society. Some people agree with abortion and euthanasia, others do not, and then which of them is in the correct position from the ethical viewpoint? Such traditional customs exist also in the economic domain. In the Western countries, prices displayed in shops are generally not negotiable; in the East, the bargaining between seller and buyer is almost mandatory. The western world puts a high price on punctuality, whereas in Latin America or in Africa one considers that the later a person can afford to be, the more important and respectable that person is. In the West the commissions granted, more or less “under the table”, to certain officials to facilitate a certain contract of fiscal or commercial facilities are considered to be profoundly immoral; one cannot say the same about the developing countries, where bribing the public clerks constitutes a usual practice, frequently in full sight. In the whole world there are still professions and occupations that are exclusive masculine or feminine. If a fly in a plane, I expect that the cockpit be populated only by men, and the coffee and drinks to be served only by nice and very good-looking stewardesses. Despite several still insignificant exceptions, in the whole world one considers that the military uniform becomes only men, and men, in their turn, have no business being in a kindergarten. Even in the most advanced and progressive countries, women receive a smaller salary than men do, even if they perform equivalent works. Forbidden by law and morally scandalous in the West, children's labour or even bondage is something usual in the Third World etc. In order to avoid possible terminological confusions, we shall call ethos this ensemble of customs and traditional behaviours and attitudes which are interesting for anthropology rather than for ethics in se. 317 Knowledge Based Organization 2008 International Conference
Second, by "ethics” one understands the set of values and norms defining, in a certain society, the person of character and the rules of just, dignified and respectable behaviour, whose breaching is blameable and which should be obeyed. In this sense, ethics promotes certain values, such as honesty, justice, courage, sincerity, kindness, altruism etc., attempting to make people observe norms such as: “Do not lie!”, “Do not steal!” “Help your fellow men!”, “Respect your parents!”, “Raise your children properly!”, “Always keep your promises!” etc. In the natural ways of Romanian language, the ensemble of these rules of “good behaviour” is called morals, and the conditions of man aspiring to live according to certain high ideals and principles is called morality. In its proper meaning, ethics or moral philosophy is a theoretic interpretation of ethos and moral phenomena. The ethical reflection aims at clarifying a series of issues with theoretical instruments, such as: Can we be moral? Why be moral? How to be moral? What are right and wrong, pleasure and duty, justice, dignity or kindness? What does happiness consist of and how can it be reached and kept? What kind of rational arguments can consistently support a certain moral commitment or decision? How strong is the influence of irrational factors in our moral attitudes? etc. The increase of interest for business ethics is also triggered by the change of the very nature of business in the context of the last decades, when the globalisation process has become more poignant, and we shall grant a special attention to this phenomenon in the second section of the manual. The companies become international, more complex and dynamic than ever before. Consequently new issues occur, and values and normative certainties of local business environments are replaced by the relativity of a multinational and multicultural context, in which the criteria of moral correctness differ and are rapidly modified. As a result, even the older issues become more and more difficult to solve, and business should reopen the debate on certain principles and values considered self-understood until recently.
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The increasing importance granted to business ethics is explained also by the modifications undergone by the corporations' structures and strategies. Recent trends in the managerial theory and practice, such as total quality management, as well as the processes of restructuring and redimensioning of top companies have led to the abandon of many traditional practices of managing economic processes. Knotty and rigid managerial hierarchies have been considerably levelled. Consequently, decisional authority and liability have bee more and more dispersed within the company. Important decisions are taken at lower and lower hierarchic levels, and by more and more employees. That is why it is essential that each employee, not only the top management, understands as well as possible the complexity of the ethical issues ; all the members of a company should know the essential values and goals of the organisation and how they should be reflected in the practical conduct of the company and in the economic environment. But in order to enable the dissemination of business ethics to all the corners of a firm, it should be first of all understood. Understanding the moral criteria of business behaviour is extremely important, as the new organisational structures give birth to new complications (connected to the circulation of information and management of information within different working teams and the entire organisation), for which there are no traditional precedents. So that the employees’ empowerment be successful, a thorough understanding of business ethics is absolutely necessary. Obviously the list of these major changes, meant to increase the importance of business ethics, is incomplete; many other aspects may be discussed. It is certain that in the European context also, an increasingly full consensus on the importance of ethics in business is being shaped, among students, professors, government officials, or consumers, but especially among firms. In most European universities one has recently introduced courses in business ethics; the number of articles published by the press on business ethics has exploded; on the Internet one may find at this
319 Knowledge Based Organization 2008 International Conference moment over 20,000 web pages and about 1,200 books exclusively dedicated to business ethics. One may even speak of a new “industry” in the field: in modern corporations there are already corporate ethics officers; the number of independent consultants in the matter of business ethics has increased; the trusts of ethical investments are more and more vigorous on the market and are very present on the capital markets; the activities of ethical audit, monitoring and assessment, recently initiated and developed by well-known firms such as KPMG, McKinsey, PriceWaterhouseCoopers etc, are very prestigious. A proof of the business ethics vitality is the fact that, despite its short history up to now, this field has known, only in the last two decades, obvious thematic and conceptual evolutions, especially under the influence of the effects of the globalisation process and the new concept of sustainability. As it seems, the “opening” of the game was won, and business ethics seems to have a notable future, both in the academic environment and especially in the predictable evolution of firms and corporations engaged in the turmoil of market economy. Nevertheless, not all people are convinced of the seriousness and opportunity of business ethics. There are still enough sceptics and strong adversaries who contest either the capacity or the right of business ethics to usefully pronounce it self on the behaviour of economic agents.
References [1] Rîndaşu V. C., Ciurea J. B., Irimia H., Entrepreneurial and innovational management, Eftimie Murgu Publishing House, Reşiţa, 2007. [2] Sasu C. –Initiation and development of businesses, Polirom Publishing House, Iaşi 2001. [3] Say, J. B., A Treatise on Political Economy or the Production, Distribution and Consumption of Wealth, A.M. Kelley Publishers, New York First edition 1803, 1971. [4] Scarborough, N. M.; Zimmerer, T. S., Effective Small Business Management, Merrill Publishing Company, Columbus, 1991. [5] Schere, J., „Tolerance for Ambiguity as a Discriminating Variable between Entrepreneurs and Managers”, in Academy of Management Proceedings, Kae Chung, 1982.
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[6] Schultz, T., W., Investment in Entrepreneurial Ability, 1980. [7] Schumpeter, J., The Theory of Economic development, Harvard University Press, Cambridge, 1934. [8] Schumpeter, J.., Capitalism, Socialism and Democracy, London: Routledge, 1996. [9] Schumpeter, J. The Theory of Economic Development: An Inguiry Profits, Capital, Credit, Interest and the Business Cycle, Harvard University Press, 1961 [10] Servan J.J., The world challenge, Humanitas Publishing House, Bucharest, 1990.
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BACKGROUND TO THE INDUSTRIAL PARK CONCEPT
TA Ciurea Jeanina Biliana
”Eftimie Murgu” University, Reşiţa, [email protected]
Abstract This paper presents the Business Park (BP) concept, highlights the advantages that BPs offer to occupiers, developers and communities and investigates the various uses to be found in BPs. The article also discusses topics like: reasons for locating in business parks, regional economic role of business parks, factors in successful business parks, business parks as a rural development tool or governments' role in business parks. Finally this paper concludes that business parks can be a viable community development alternative.
Keywords: business parks, technology parks, rural development, Government involvement.
Economic activities can take place in either a physically scattered manner or in proximity. Companies in physical proximity in a designated area form the business parks. A business park is a site that is designed for economic activities in the field of trade, industry and different commercial activities (IBIS 2002b) Business parks are agglomeration of companies in physical proximity. These features provide certain benefits. Local authorities favour the establishment of business parks to ensure intensive use of land and create strong business environments in their localities. In the private sector, companies receive various benefits from being part of the B. P.
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First, the agglomeration factor leads to decreased costs for common maintenance services. Secondly, parks with companies in similar sectors benefit from joined marketing activities and increased exposure. Thirdly, BPs embody conditions for synergy between companies. Synergy can be based on activities such as sharing and exchanging of materials and streams, professional knowledge and expertise, etc. Business parks in Germany (Gewerbeparks) are buildings constructed by project developers and available for letting which consist of a combination of office, service and warehouse space on a parklike site and offering professional management. Depending on the way the space is used, it is possible to distinguish between four different types of business parks: Type 1: approx. 10% offices and 90% warehouse space Type 2: approx 40% offices and 60% warehouse space Type 3 : approx. 45 % offices, 10% services and 45% warehouse space Type 4: 80% offices and 20% service space. Advantages: - For occupiers, BPs offer the capacity to grow and expand at the same location. Startup companies can begin operations in small-scale incubator space and eventually move to more prestigious headquarters without ever changing their address. Established companies can centralize their operations, from high-visibility corporate headquarters to inexpensive back-office space or flex space. - For developers, BPs offer flexibility as well. Despite BPs being long-term investments with large budgets because of the size and infrastructure requirements, developers have the benefit of deciding whether to sell unimproved land parcels or completed buildings in a BP> Risk is also minimized by the opportunity to phase the development, relying on positive market conditions or formal lease or sale agreements before proceeding with construction. Many developers will not initiate a project until a formal commitment has been received to lease or buy a major portion of the project. - Communities reap potential benefits from BPs . In an era of increasing competition, to attract new businesses and jobs many governments see BPs as a tool to stimulate economic development. In 323 Knowledge Based Organization 2008 International Conference some case, the argument is strong enough to warrant the public sector’s active participation in the formation of BPs and the provision of tax incentives or financing assistance to developers. A BP is a multibuilding development planned to accommodate a range of uses, from light industry to office space, in an integrated parklike setting with supporting uses for the people who work there. They can range from small parks on several acres to facilities of several hundred of acres or more. Multi tenant business and technology parks contain a variety of uses, ranging from light industrial, R&D, warehouse/distribution, commercial offices and incubators for start-ups and growing companies to data centers, call centers, and back office operations. Many business and technology (tech) parks are also home to other support-related activities and services, such as retail centers, banks, hotels or lodging facilities, health clubs, day care centers, and other types of amenities. These other activities and amenities typically cater to the needs of the tenants located in the park and to businesses, employees and residents in the surrounding area. They also can be a good marketing tool for attracting users to the business and technology park. Although these parks have a number of tenants, one owner or one agency representing the owners has control of the entire park. Aside from the variety of uses found in the park, contemporary business and technology parks differ in a number of ways from industrial parks. They typically have higher quality environments; more sophisticated land use planning; higher quality architectural design; more building flexibility; and additional design, environmental and land-use controls and restrictions. The developers of business/ technology parks usually are responsible for transportation and utility improvements inside the park, and, oftentimes, outside the park, too. Some of these costs may be passed on to the tenants through higher land costs or rental rates. Since low investment costs are critical for companies or businesses located in the park, infrastructure improvement costs need to be kept at reasonable levels. Business and technology parks: • Have a variety of uses and activities that are “clean” and have limited negative impact on surrounding uses and their neighbors. 324 Knowledge Based Organization 2008 International Conference
• Provide a conducive, supportive and sometimes innovative environment because of the multitude of tenants and amenities in the park. • Provide homes to small and medium sized companies on improved, shovel ready sites • Reduce the risks of the location decision for the tenant, enabling companies to operate in an environment that is much more controlled than a freestanding, single use industrial or commercial site. • Enable businesses and investors to only purchase the land needed for their operations or facilities. • Provide the opportunity for companies to start construction and the start-up of their operations quicker since uncertainty and site costs are reduced. The State of New York has a business environment that is very conducive for supporting new projects. There are a number of key factors that provide business and technology parks with a competitive location advantage. These include vehicular (automobile and truck), airport, and, if appropriate, public transportation access; good visibility, quality image and attractive, compatible surrounding uses; the availability of a productive, qualified, skilled workforce; labor cost; utility and telecommunications (telecom) infrastructure; quality educational institutions with relevant courses, degrees, programs and training; links to a research university if R&D is a focus of the park; and quality of life.
Firm reasons for locating in business parks In his paper “ Issues and concerns for the public funding of business parks”, Roger H. Coupal discusses topics like: reasons for locating in business parks, regional economic role of business parks, factors in successful business parks, business parks as a rural development tool or governments' role in business parks. Location decisions by firms has been an extensively studied phenomenon. Traditional approaches to firm location decisions focus on factors in the cost of doing business: low wages, quality workers, proximity to necessary resources, available infrastructure, tax advantages, etc.
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The existence of a research university plays a major factor in the success of nonmetro research parks, (Lugar and Goldstein, 1994). Another factor in the location decision are quality of life considerations. A high quality of life gives firm managers a broader and personal reason for staying in a community and helps them retain high quality workers. Modern day business parks focus on building and enhancing what Venable (1990) calls park amenities as well as external attractions such as University links. Venable defines park amenities as ranging from well landscaped parks to collective conference centers, eating establishments, tenant guest accommodations, to child care facilities. The existence of amenities is a very important factor in the decision to locate or remain in a community.
Regional Economic role of Business Parks The regional development role of business parks can be characterized in two similar types of regional development theories: A "growth pole" or an "entrepreneurial seedbed", Peddle (1993). As a growth pole it takes advantage external economies that exist in the region such as transportation, qualified labor pool, or technological spillovers. As the number of firms with similar needs increases, it facilitates the continued development of a qualified labor force, and other external spillovers. As a seedbed it fosters the growth of entrepreneurs in the region. But as the population of entrepreneurs turns over with some going out of business (as is often the case), the business park houses new start- ups or migrants. Business parks are often located with business incubators, where firms that leave the incubator can easily move into another complex.
Factors in a successful Business Parks Factors that have been identified as contributing to a successful business park can be divided into two types: Locational, and Management. Locational advantages are characteristics external to the firm that attracts the firm to the area.
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Locational Characteristics: 1. If it is a research park, then proximity to a research University. Goldstein and Lugar (1994). 2. A sufficient pool of entrepreneurs in existence or to be developed. Peddle (1993) 3. Well supported community infrastructure. Goldstein and Lugar (1994); 4. State or local government incentives. Goldstein and Lugar (1994). Management characteristics are certain policies that have proven successful in attracting and keeping firms. Managerial Characteristics: 1. Well planned facility, minimizing construction costs and congestion problems, Riesdorph (1991), Peddle (1993). 2. Park amenities, e.g: - Conference / meeting centers - Eating places - recreational facilities - day care. 3. Good marketing plan 4. Mixed development (diversification) Reisdorph (1991) 5. Good environmental planning, Goldstein and Lugar (1994); Reisdorph (1991). Business Parks as a Rural Development Tool Business / research parks can be viewed as a potentially good rural development tool, Riesdorph (1991), Goldstein and Lugar (1994). However, the tool is not without risks. Peddle (1993) cites evidence that 59 percent of industrial park space is vacant, nationally. Venable (1990) argued that the industrial park market was a tenant's market the management has to be aggressive in marketing the park. It also means that design and planning must provide the park with amenities that attract and retain firms. Finally, it also means that the quality of life in the community has to be sustained and developed so management has a broader community asset to market.
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Governments' Role in Business Parks Most business parks are privately financed ventures. Even so a significant number of them are publicly owned. The extent of private ownership, however, may belie a larger level of government involvement because there is no knowing how many of the these parks may have gotten subsidies and grants to develop the facilities. Furthermore, the reported results were on all business parks, and did not distinguish between office parks, mixed development parks, traditional industrial parks, and research parks. Research parks very often have as a stated goal to provide jobs for nearby research universities (Lugar and Goldstien, 1994), which would suggest government backing, if not government ownership.
Rationale for Government Involvement Government intervention into markets occurs for two reasons: perceived market failures and barriers to entry, and society's redistribution of wealth objectives. Since the latter is clearly not an issue in business park development, the former is what concerns the policy objectives. Government's development or support of business parks can be considered a capital subsidy that helps newly established firms direct more of their assets into product development and market penetration, rather than being used for land acquisition and buildings. Capital subsidies have been characterized in the literature as a "lubrication argument" or "catalytic argument", (Shaffer, 1989.) A "Lubrication argument" contends that to speed eventual free market adjustments by reducing historical and institutional barriers, by reducing risk to the entrepreneur, by compensating for the lack of agglomeration economies (transportation facilities, skilled labor pool, etc.), and by neutralizing resource misallocation caused by immobile labor, minimum wage, or other factors. The Catalytic argument contends that incentives stimulate the development of specific skills in the labor force or stimulate investment in critical businesses or services that are precursors to other development efforts. What is implicit in both these arguments though is that a market failure exits. If so it may make sense for public intervention. If the reason for a lack of facilities is simply because the return to developers does not justify an investment, the market is responding 328 Knowledge Based Organization 2008 International Conference well, and public intervention will create market distortions rather than compensate for them. The local effects of such publicly created distortions could be an inflated land market that makes it difficult for non-park businesses and new residents to purchase land. It could also encourage these other firms that do not receive the subsidy to lobby harder for other subsidies or tax break for themselves. Another potential impact of public provision is a bidding war among the region's technology parks. This zero sum game can end up hurting all communities by reducing their taxable base all around (Harrison and Kantor, 1978). Conclusion Business parks can be viable community development alternative. Proximity to a research university, well planned park amenities, and sustained community and park amenities, all figure in to the viability of an already over built market. The economics of using public funding to initiate a park are uncertain. While it may provide communities the tools to target the kind of firms they want, there are also potential negative effects.
References [1] Davidsson, P., Researching Entrepreneurship.New York: Springer Science Business Media, Inc., 2004. [2] [2] Deppe, M., Leatherwood, T., Lowitt, P. and Warner, N., A Planner's Overview of Eco-Industrial Development, 2000. [3] Drucker, P. F., Innovation and Entrepreneurship. Practice and Principles. London: William Heinemann Ltd., 1986. [4] Erkkila, K., Entrepreneurial Education, New York: Garland Publishing, 2000. [5] Friedenstab, T., Jochum, C.,Peter, J. and Spindler, G. “Industrial Parks and the Law of Hazardous Incidents: Criteria for regulation of safety responsibilities with establishments governed by the law of hazardous incidents in industrial parks” UFOPLAN Ref. No FKZ: 299 48 325. [6] Gareis, K., Das Konzept Industriepark aus dynamischer Sicht, Wiesbaden: Deutscher Universitats-Verlag GmbH, 2002. [7] Higgins, B. and Savoie, D.J., Introduction: the economics and politics of regional development in Regional Economic Development, Boston: Unwin Hyman, 1988.
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INTUITION OR FINANCIAL CULTURE IN TREASURY MANAGEMENT
TA Georgescu Floarea, TA Murariu Ioana-Adriana
“Spiru Haret” University, Bucharest, [email protected]
Abstract In a market economy, cash is one of the most important forms of capital. To pay employees, suppliers and taxes to government institutions or to make other cash payments are required money to ensure continuity of business enterprise. Lack of cash, even if the company has other materials, can cause failures and even bankruptcies, so it should not be wasted or improperly dimensional, without having a good background in terms of the best of it. It is therefore necessary that the entreprise to apply measures of cash administration more effective, to plan and establish it correctly and synchronize the input and output of liquidity necessary to ensure the continuity of economic and financial activity. Starting from these considerations, from the needs of short-term financing of a company, from the issues that a treasury management implyes, the study raises the level of the countless questions.
Keywords: cash, treasury, cash, equivalent cash, cash flows
Balance sheet and the profit and loss account are the summary of documents whose publication is required. In Romania on the basis of these documents, internal and external users of financial information may conduct economic and financial analysis by calculating the rate and indicators that can present the enterprise pozition, at a given time, depending on their interestes. Indeed the wealth of a company, at the end of a given period, is reflected by the balance sheet. Liquidity of enterprises themselves represent a treasure, but to be cataloged so, they must be placed in an industrial, commercial or financial process, which in turn produce 330 Knowledge Based Organization 2008 International Conference wealth. Investors and creditors of the company are preocupied primarily with the information about the ability to obtain future earnings and to turn them into cash. Therefore, their decision to invest or not in that business will be taken, most often, depending on the monetary flows that it liberate, not on the size of the profit obtained, which largely depends on how are applied accounting principles, methods used in calculating and measuring results and other factors more or less subjective. The balance sheet gives information about the financial position of the entreprise by the three structures, which include: assets, liabilities and shareholders' equity. Based on these data and information it can be calculate certain statistical rate of liquidity, which are actually representations of liquidity in the financial year closure. Given the fact that during the financial year, liquidity can change, only the use of several successive balances or making comparisons with the rates of liquidity from other similar businesses can express a certain trend in the evolution of a business liquidity. Even if changes in the variation of entreprise treasury can be determined on the basis of information contained in the balance sheet as the difference between the amount of cash at the end and beginning of the year, the phenomena of liquidity and solvency requires complex analysis, which raised the contribution of all the factors that determine this variation, to assess the ability to withdraw cash, to determine the need for cash to provide maturities and risks of future revenue. The profit and loss account reflects the information relating to the flow of riches made by the company at the end of the year, in the form of profit or loss. A relevant and credible financial analysis, based on this document, should not only aim the present profitability, but most importantly, the future profitability of the enterprise, identify risks that the company will face in the future on the line profit . Unfortunately, the profit and loss account can not provide such information. Not few are the situations when profitable enterprises, which recorded high rates of profit, are facing an acute shortage of liquidity, through the practice of management policy directed towards making big investments, excessive stocks, which leads to immobilization of important financial resources large periods of time.
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Starting from the insufficient information provided by the balance sheet and the profit and loss account becomes visibl the need of a new accounting synthesis document, the treasury board flows. The neccesity of a third synthesis accounting document, the treasury board flows, alongside the balance sheet and the profit and loss account was felt due to the limites presented in the release of financial information and have been presented previously. The development of an entreprise of the treasury board flows is required because of its usefulness1, both internally (management company) and externally, especially for investors and creditors. Managers use the information from the treasury board flows in order to determine the degree of liquidity of the company, to evaluate the effects of major strategic decisions on investment and financing or to propose policy dividends. Investors and creditors are using the information contained in the treasury board flows in order to determine the ability of the entreprise to generate positive cash flows, to pay its debts, to pay dividends and interest, to forecast the additional needs of funding and to explain the difference between the net profit obtained with the help of the profit and loss account, and net cash flows generated by operating activities, considered the main task of producing profits of the company. The theory and financial practice have shown that those interested in a particular company will base its business decisions relating to it in terms of the ability to generate cash flows in the future. The previous cash flows provides relevant information about future cash flow, because they illustrate how the company generates cash and how it spends. The information about the cash flow can help users in making judgment over the timing and certainty degree of future cash flows and are offering a clue on the relationship between profitability and ability to generate cash and thus the quality of profit achieved. In addition, users of financial information developes, often models to estimate and compare the present with the future cash flows.
1 Usefulness of a treasury board flows is put in evidence also by the U.S. accounting standard FAS 95, (Financial Accounting Standards), in 1997. 332 Knowledge Based Organization 2008 International Conference
Keystone accounting of the conceptual framework is the quality of financial statements, which take place and accounting principles (intelligibility, relevance, reliability and comparability). Intelligibility concerns slight understanding of information by the users. To do that it must be assured a balance between accounting knowledge of the users of business and economic activities , which should be sufficient, , on the one hand, and the same desire to study the information forward reasonable efforts, on the other. As disengage from the frame, information regarding the complex problems that should be included in the financial statements, due to their economic decisions of users, should not be excluded only on the grounds that it might be too difficult to understand for some users. Relevance. Good information has relevance if they are helping the users to evaluate the events of past, present or future, confirming or correcting their past evaluations. The relevance of information is influenced by the nature and significance. In most cases, nature itself is sufficient to determine its relevance. But there are not few the cases where the nature of materiality should be associated with it. Materiality threshold of significance seeks information to determine their relevance if their omission or erroneous declaration might influence the economic decisions of users taken on the basis of the financial statements. Accordingly materiality depends on the size of the item or error judged in the surroundings of the specific omission or trespass their declaration. Thus, materiality provides a threshold or a limit that information must have in order to be useful. The credibility of financial information refers to the lack of error, bias or distortion of this information so that users can trust that they represents fair and reasonable reality model. In acceptance of the IASB, the credibility of the information is defined by the following elements: fair representation, the legal prevalence economy, neutrality, prudence, integration. a) Fair representation. Information describe the correct transactions and events that it seeks to represent them. For example, the profit and loss account, must present credible, transactions and other events generating revenue and expenditure at the end of the year, meeting the criteria for recognition. 333 Knowledge Based Organization 2008 International Conference
b) The prevalence of legal economy. Information are credible if the transactions and the events that they describe are accounted and presented in accordance with their background and economic reality and not just with their legal form. c) Neutrality. The information contained in the financial statements are reliable if they are free of subjectivity. Therefore, they do not influence a decision or formulate a reasoning to achieve a predetermined interest. d) Prudence assumed to include a degree of caution in formulating arguments required to make estimates in conditions of uncertainty, so that assets and incomes should not be overstated, and the expenses and liabilities should not be subevaluate. e) Integration. Information must be complete within reasonable threshold of significance and the cost of obtaining information, since the omission of some items may have the effect of counterfeiting information and default decision wrong. f) Comparability. The information presented in the financial statements should be comparable in time and space. In this regard it is necessary the continuity of methods of assessment, classification and the presence of items described in the financial statements. If they have changed, users should be able to identify differences between the accounting methods used. The need for comparability should not be identified with simple consistency and must not become an impediment to the introduction of improved accounting standards. It is not appropriate for a company to leave its accounting methods unchanged when there are alternatives more relevant and credible. Accounting conceptual framework of the IASB defines the restrictions which should be followed by the financial information, namely: timeliness, cost-benefit report, balance between quality. a) The opportunity means reporting on time of the information in order to realize the usefulness of its business decisions. Any excessive delay in reporting information leads to the loss of its relevance. In this sense, the enterprise can be in the position to choose to provide information relative to a particular period or credible information. An information inopportune leads to the diminuation of its credibility because, often, the information must be submitted before being known 334 Knowledge Based Organization 2008 International Conference all aspects of a transaction or event. Reporting an information with a relative delay, to knowledge of all aspects, maintain the credibility of the information, but it diminishes the usefulness because users had to decide between time. Therefore, the information needs of users in making economic decisions requires achieving a balance between relevance and credibility. b) In the cost-benefit report is essential to consider the financial information as an "enterprise resource". Benefits obtained after using the information should be higher than the costs required to provide them. c) The balance between quality, is generally a non-sinequa condition for achieving the objective of financial statements. Achieving this objective is more difficult as, the relative importance of quality is a matter of reasoning that the professional producers and users of financial information. Romanian accounts could not remain passive in the challenges it is exposed accounts currently on the international level. It tries to solve its problems by joining the solutions proposed by international accounting standards. As proof of this preocupation for this issue, the Ministry of Finance has drafted regulations to harmonize the romanian accounting system with the IV European Directive and the International Accounting Standards IAS / IFRS. In the implementation of a romanian accounting system that operates in an economic, political, social and cultural environment will not be easy to achieve. Given those specified above, harmonization of accounting from Romanian Directive IV of the European and the International Accounting Standards will encounter, whereas the Directive requires a political substrate, while the International Accounting Standards are basic substrate of a conceptual nature. The new rules are characterized by a higher degree of flexibility, elasticity and dynamism adapted to the environment in which the market economy evolves. Basically it is switched to an accounting system in which the formation of the accounting profession will be achieved on the basis of professional reasoning. What will mean for the romanian accounting system that is required court business? Where will place its 335 Knowledge Based Organization 2008 International Conference borders applicability? Are questions that will constitute "a test of fire" for years to come. The reasoning professional will be the basis for the definitization of accounting policies and options business.. IASB accounting framework addressing the concept of true and fair view, states that the financial statements must show true financial position, results and financial position changes of the enterprise. Application of qualitative characteristics and appropriate accounting standards, they normally result in the preparation of financial statements to reflect a true and fair view or a fair presentation of financial position and performance of the company. In a rules-based accounting standards, fair image as an objective of financial accounting is defined in the light of the terms of regularity and sincerity. Regularly means respecting the rules and accounting procedures in force. So it resortes to legal texts and regulations that contain specific details of the principles, rules and accounting requirements. Honesty means the implementation with good faith and professionalism by accounting rules and accounting regulations in light of knowing the facts and circumstances of operations recorded in the accounts. Honesty means the quality of documents, accounting records and review documents, which must be as precise and also an honest conduct of those responsible with the accounting, who should not distort reality and should know to apply the rules and accounting treatment. Institute of normalization carrying U.S. FASB (Financial Accounting Standards Boards), deals with issues related to the board flows through treasury accounting standard FAS 95. Under FASB aim of the flows of treasury is to provide information on receipts and payments for deposit of a company, produced during a year. A second objective is to provide information on the activities of exploitation, investment and financing carried out by a company during the accounting year. Institute of International Accounting Standards, the IASB, the International Accounting Standard IAS 7 "Cash flow situation", states that "the objective of the cash flows treasury is to require information to be presented on the history of the movement of cash and equivalent
336 Knowledge Based Organization 2008 International Conference cash, a business through the cash flow, which classifies cash flows during the period, on operating activities, financing and investment. 2 " From those listed above we can see similarity of the objectives of a proposed statement of cash flow, the two bodies of normalization accounts: the american one – FASB and the international one - IASB . This is not surprising, knowing that the steps related to the normalization of IASB international accounting were largely influenced by the FASB. IASC has not defined the concepts of treasury bills or treasury flows, however, the standard IAS 7, shows that treasury designates all the liquidity and equivalent of liquidity. Liquidity (cash) refers to funds available (cash on hand) and the deposits (demand deposits) of an enterprise. Equivalents of liquidity (cash equivalents) is the investment in the short term, highly liquid, easily convertible into a size determined by liquidity and not likely to change significantly the value.The enterprises are tempted to hold equivalent of cash to meet commitments short-term treasury (usually under 3 months), and not for the purpose of investment objectives. For this reason, securities which represents holdings are not included in the equivalent of cash (excluding shares purchased shortly before their maturity which have a fixed rate of reimbursement), as, short-term loans, repayable in view, given throught current accounts, are included in the category of cash and cash equivalent.
Conclusions: Information on the treasury are considered key information and at the same time objective, because through their the enterprise ensure its financing business and continuity. This information are useful, especially in substantiation of economic decisions, decisions that have, in general, financial repercussions. In their context the investment and credit decisions are a priority. Any economic decision of investment aims to improve the financial position of the operator, leading to the increase of its heritage.
2 Ministry of Finance, Practical Guide for the application of International Accounting Standards, Part I, Ed Economic Bucharest in 2001 337 Knowledge Based Organization 2008 International Conference
Therefore, the financial information must help the investors to anticipate and to determine the moment when his initial investment will be recoverd. In this context, it is requested more the presentation by the entreprise of some certain financial provisions, based on the cash flows, which reflect the tangibility. On the other hand, more and more categories of users of financial accounting information (especially investors in assessing the idea of solvency) are interested in how "the company produces and uses the money”. The cash flows board is an alternative to solve problems related to financial information to all those interested in economic and financial condition of a company and a very useful tool. Currently, different accounting systems are under "the banner of" an extensive process of "conciliation", seeking to redefine its position in order to find a universal accounting language. In this context, the arguments that justifies the harmonization of international accounting rules are: - allows enterprises from various countries whose financial statements are in accordance with the requirements of the IASB to be listed on any financial market: - make available a wide range of users from different countries, reliable and comparable information on the financial situation of enterprises and their development; - cacilitate understanding the information provided by the financial summary and assessment of relevant performance undertakings; - creates the preconditions for a integrator vision on the performance of enterprises.
References 1. Bistriceanu Gh, Adochiţei M., E. Negrea, The Finance of Economic Agents, Economic Publishing House, Bucharest, 2001. 2. Bojian O. – Financial Accounting of an enterprise , University Publishing House, Bucharest, 2004. 3. Brealey, Richard A, Myers, Stewart C., Principles of Corporate Finance, McGraw-Hill, Inc., 1991. 4. B. Colasanti, General Accounting, Edition 4, Moldova Publishing, 1995.
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5. B. Colasanti, Gestion financière de l `entreprise, Edition 4, Economic Editions Paris , 1993. 6. B. Colasanti, Harmonisation comptable internationale: de la résistible ascension de l` IASC/ IASC, dans l` ouvrage coordoné par Kalika M., Management européen et mondialisation, Dunod, Paris, 2005. 7. Delesalle E., 100 Difficultés Comptables, Fiscales et Juridiques, Collection Experts Comptables Univarsales, Paris, 1995. 8. Dragotă V., Obreja L. A. Ciobanu, Dragotă M., Financial Management, Economic Publishing House, Bucharest, 2003. 9. 9.Duţescu, A. - Guide to understanding the application of International Accounting Standards , CECCAR Publishing House, Bucharest, 2002. 10. Duţescu, A - Accounting policies for enterprise , CECCAR Publishing, Bucharest, 2003 . 11. Feleagă, N., Malciu, L. - Recognition, evaluation and assessment in international accounting, CECCAR Publishing, Bucharest, 2004. 12. Feleagă N., Ionaşcu I, The Treaty of accounting, vol I and II, Economic Publishing House, Bucharest, 1998.1999. 13. Higgins, Robert C., Analysis for Financial Management, third edition, Richard D, Irvine, Inc., 199. 14. Lauzon L.P., Fondaments conceptuels de la contabilité financière, Exposé critique, Gaetan Morin Editeur, 1990. 15. Nicolescu O., L. Nicolescu, Economy, business and management based on knowledge, Economic Publishing House, Bucharest, 2005. 16. Ristea M., Basic and alternative in the enterprise accounting , Tribune Economic Publishing House, Bucharest, 2003. 17. M. Ristea, C. Lungu, Jianu C., Guide to understand and to apply the International Accounting Standards. Presentation of financial situationes. CECCAR Publishing House, Bucharest, 2004 18. I. Stancu, Finance. The theory of financial markets. Finance companies. Analysis and financial management, Economic Publishing House, Bucharest, 1997. 19. White, Gerald, The Analysis and Use of Financial Statements, John Wiley & Sons, 1995. 20. *** International Accounting Standards 2001, Economic Publishing House, Bucharest, 2001 21. *** Law of accounting number 82/1991 amended and supplemented. 22. *** No OMFP. 1752/2005 for the accounting regulations in accordance with European Directives 2005 23. *** International Financial Reporting Standards Committee on International Standards of Accounting, 2005 24. *** - Practical Guide for the application of International Accounting Standards 25. *** - International Standards of Accounting 2003 339 Knowledge Based Organization 2008 International Conference
THE NEW DIMENSIONS OF TRANS-NATIONAL CORPORATIONS MANAGEMENT IN THE CIRCUMSTANCES OF THE ECONOMICAL GLOBALIZATION
TA Murariu Ioana-Adriana, TA Georgescu Floarea
’’Spiru Haret’’ University, Bucharest
Abstract One of the main factors of the economical globalization is represented by the transnational corporations development and by the spreading of the branches in the entire world. The development of the transnational corporations management is a reflection of the internationalization process of the economical life, which required as a firm functional environment the international market, the global economical space. The mondialization of the competition will require to the transnational corporations to internationalize their top management structure, if they decide to obtain in a short period of time the necessary abilities for mantaining their competitiveness anywhere in the world.
Keywords: management, the transnational corporations, the economical globalization, the global market, the internationalization process.
The international and national business management are alike because in both cases they are trying to achieve the economic goals of the organization through the rational coordination and the efficient use of the resources. The differences between them are: the distinct contexts in which the are realized, the cultural diversity of the transaction participants and the different managerial concepts and practices. 340 Knowledge Based Organization 2008 International Conference
The transnational corporations management is an intercultural management in two ways: first because it refers to the relationships that are established and developed between different countries, between different national cultural spaces. Then because it regards the interactions between organizations - business, customers, competition - which have different values and behaviors, meaning they have different business cultures. 1 The development of transnational corporations management is a reflection of the internationalization process of the economical life, which was imposed as a medium of existence and operating of the company - the world market, the global economic space[1]. This process was done both by increasing internationalization – on regional level (economic integration) or global (increasing international trade, foreign investment, the development of the currency and financial relations) - and by expanding the economic relations and increasing the interdependencies between cash, investment and financial flows - on a global scale2. The corporate management is a model of economic efficiency that is often used as a background in the analysis made by the developing countries, who want comparable profitableness in their countries. Due to the management and organization of the developed strategies, the transnational corporations have guaranteed their successes. The leadership is based on studies and statistics of their own structures of scientific research or those ordered to specialized institutions. Because transnational corporations have been seeking better opportunities in terms of transnational investment, they developed their activities abroad. They seek better conditions for recovery which reside abroad. In the host country where the branch exists there are some facilities that transnational corporations may benefit: a favorable legislation regarding the import and export, the income tax. The corporations establish relations in these countries with people who can influence some measures which can ensure better business conditions. Management must face very diverse situations [3].
1 A. Cociuban – Global economy, Chişinău, 2007 2 A. Cociuban – Global economy, Chişinău, 2007 341 Knowledge Based Organization 2008 International Conference
Transnational corporations are in a geographic dispersion in the internal branches in a regional and global confrontation very varied and complicated. Therefore, the transnational corporations must have a very flexible organizational structure appropriate to those issues which require efficient changes. Today, the vertical hierarchical structures are exceeded. There are cases when a single problem or a temporary one have an unique structure. The organizational structures are applied to the new problems which appear: professional, social and cultural training. It is obvious that in the industrial revolution when the environment is radically different on economic, technical, technological and social level, it is essential that the responses of the transnational corporations to be quick to the changes . The levels of leadership have less time for decisions. Therefore, effective decisions must be taken at all organizational levels . Therefore, the organizational structures are different. In general, they are introverted and extroverted:. - on internal and external level; - on geographical areas; - on product; - mixed. Initially, the management was centralized on ethnocentric types of organization with a mandatory plan, valid throughout the transnational corporations. There are two types of decentralization3: - polycentric, with 2 management centers, for example Royal - Dutch Shell (Anglo-Dutch); - geocentric, with almost a total decentralization, for example, Nestlé which entitles the subsidiaries to operate as national societies, with broad discretion, but only to the common patrimony, which may not reach the rights of decision of the parent society.
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The main features of the types of leadership in the global firms
Managerial Leadership features features ethnocentric polycentric geocentric The managers from key Recruitment The managers from The use of positions are selected and training key positions are from the managers after their abilities staff parent society country in local indifferently their subsidiaries ethnicity
It is centralized on It is descentralized Authority Concentration between parent company on subsidiaries center and subsidiaries
High volume of Informational information beetween the Low volume of Moderate volume of flow center and the subsidiaries information information ( instructions , reports) The The performances are performances are assessed on the basis of the The are accepted both Evaluation determined and standards from the origin typs of standards in order and control appreciated on country of the parent society to make evaluations local standards
Sourse: V. Gheorghiţă, A. Cociuban – Global Economy, Politeea Publishing House, 2002
Besides the organizational problems, the leadership must pay attention on the size of the capital , included in the so-called growth strategy. They are two kinds of this strategies: internal growth (organic) and external growth4. By self financing it results the internal growth (organic). From the personal profit a part is used for investment. For the same kind of growth is resorted to bank loans, to emission shares or bonds. In general, the internal or external way is chosen according to the business cycle. It is clear ,economically speaking, that the corporations are soaring, the profits are higher and they may allocate investments. Increasing the size of foreign transnational corporations refers to
4 A. Cociuban – Global economy, Chişinău, 2007 343 Knowledge Based Organization 2008 International Conference strategies such as mergers, absorption, the purchase of part of transnational corporations, capital another. Through fusion new companies appear , through the absorption of a company with a precarious situation by another. In order to face better to competition, a merger can take place, the new company bearing the name of both partners. The most numerous cases are those representing the absorption or acquisition of other companies by a very powerful transnational corporation. Of the total mergers and acquisitions, the first represents after World Investment Report 2000 (UNCTAD) only approx. 3%. It can be made partial acquisitions that represent the result of purchase of shares by transnational corporations, even the bought of a package of actions which allows to take control and decide. Buying can be achieved through a cash amount or public offering. There is also a public offer of exchange when there is a sale of shares in mutual companies. The wave of mergers and acquisitions in the last decades reflects the increasing concentration of international capital in order face competition and expansion needs better. The concentration is presented as two aspects: a horizontal and vertical one. The horizontally international concentration is characterized by the fact that transnational corporations are expanding across borders , opening new subsidiaries in the same branch with the parent company, making the same product. The vertical one means also the extension of the transnational corporations through new subsidiaries or new units of production and outlets in the upstream or downstream of the parent. The branches are specialized in this case to produce a certain type of product. More companies may form a union in order to constitute a conglomerate concentration-type , without links between them technology line. Besides that one of the advantage is facing the competition better, the purpose is not the increasing of production, but the financial strengthening. It is a holding that manages the capital [4]. The conglomerates are specific to the U.S. practice. For example, ITT has production units in telecommunications, electronics, insurances, constructions, hotels, navigation devices, cosmetics. 344 Knowledge Based Organization 2008 International Conference
However, the merger and acquisition related to transnational corporations are wanting to chance, they are based on a laborious volume in terms of control and legislation from the state. American law in 1890 called the Sherman Act represents the first regulations which specify that a person who monopolizes the market, which tries or conspires with another person in order to monopolize, is judged as guilty of crimes. The antitrust law has been improved several times, being called Hart - Scott - Rodina Antitrust Improvement Det - 1976. It also became famous the case of Microsoft accused of monopolization of the Internet market and that this corporation is binding to a certain extent the consumers to purchase with the Windows operating system and another program for viewing AVI files, although on the market there are many products of this kind. As regards the European Union, the Treaty of Rome (1957) established the "principle of anti-ban agreements" which exercises a negative effect on intra-community trade. Article 85. paragraph 1 of the Treaty stresses that "there are incompatible with the common market and prohibited all agreements between enterprises, the decisions regarding the combination of enterprises and practices which may affect trade between Member States and which have as their object the prevention, restriction and distortion to competition within the common market." Exception are set out also in the treaty. In order to apply the treaty provisions on the abuse of dominant position, the Council of Ministers adopted the Regulation no.17 of 6 February 1962 which establishes the procedure for checking the behavior of enterprises, which is guided by the European Commission. Subsequently, through the Single European Act (1985) and the Maastricht Treaty were included new rules regarding the competition and public procurement, which would eliminate the abuse of dominant position.
The management strategies of transnational corporations Transnational corporations should formulate specific strategies for the future to ensure the mobilization of all its human, material,
345 Knowledge Based Organization 2008 International Conference financial and informational resources in order to achieve their objectives5: • On-line trade - transnational corporations are entering into a country on a market segment where it is not competing through the export and then establishes its representation if businesses grow and the business environment is propitious, opened a subsidiary; • With foreign direct investment in a local firm; • Through investment portfolio, the transnational corporation became owner by purchasing shares in a company; • Through "hot money" based on the speculation on foreign exchange developments courses; • The acquisition of loans with low cost in a country that allows the practice of low interest and placing their investments in another country where has a subsidiary and where it leads a policy of high interest. An interesting strategy has left the idea of transnational structures involving an international division of labor intra-firm. For example, transnational corporation as a whole worldwide consisting of parent society and its subsidiaries, has introduced a division of labor between them. Thus, a product is divided into parts, between branches and subsidiaries or between parent society and in another location is assembled. There are arising cases when one reason or another, depending on the interest, in the distribution network may enter independent firms, through technology, scientific research, the so-called strategic alliances inter-firm, which in time grows as number6. Although many companies prefer to remain profitable in the national or regional markets even in the 2006 years, economic globalization encourages a large number of enterprises to engage into an international competitions7. Because of this two issues of transnational corporate management appear. First managers are forced to learn how to select and train an active population , offering them
5 V. Gheorghiţă, A. Cociuban – Global economy, Politeea Publishing House, 2002 6 A. Cociuban, Global economy, Chişinău, 2007 7 V. Gheorghiţă, A. Cociuban – Global economy, Politeea Publishing House, 2002
346 Knowledge Based Organization 2008 International Conference adequate reasons. This requirement imposes them to know more languages, to travel in those countries, to figure out different cultures, to work in the middle of a multi cultural team in order to learn how to rule them, to be prepared to mitigate any conflicts between cultures. New cultural sensitivity requires them to know much better the culture of ethnic minorities in the countries in which they work. Secondly, the theoretical work of international management is put in the position to deepen its research on the correlation between "culture" and the national culture. The globalization of the competition will also impose the enterprises to "internationalize" top management structure, which generally includes 100, 150 directors (their number may reach 500, in large corporations), if they decide to acquire the powers necessary to maintain competitive anywhere in the world. Directors of top managerial hierarchy can take training courses in international management field ,in enterprises or subsidiaries , in which the employees deliberately chosen from different international and belonging to different cultures participate. Some companies consider that multinational teams are a very good measure taken in order that the managers to obtain the international perspective that they need. Many transnational have proceeded either on its own initiative or under the pressure of external constraints to internal restructuring, the reduction of the activities or conversion of some types of activities in other enterprises or “decentralization in the shattered pyramid ", which gives quite large importance to the branches near the clients into the detriment of the central one [2]. The analysis done last quarter of a century by the international management theorists evokes primarily the progressive unification of world markets. Under the influence of the General Agreement on Tariffs and Trade (GATT) took place a massive drop of customs barriers and the emergence of the three economic areas dominated and replace with a policy of protection. Encouraged by the same result, companies have waived the strategies centered on the convergence of the markets preferred to other marketing strategies designed to harmonize global functions
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They have passed from the measures which focused on the correlation of a dynamic business to those focused on managerial competencies at the international level. In conclusion, the enterprises have proposed to find similar forms of organization to cope with both antagonistic pressures to international unify and numerous calls of regionalization. Another theme that dominates the international management theories aimed at various attempts of nation-states to provide or to create suitable environments of socio-cultural structure of the international economy and to aspire to the principles relating to "equal opportunities". One of the fundamental elements of this national policy was the creation of major trade unions such as the unification of the European market, the emergence of a large number of bilateral free-trade agreements like the North American Association of free trade. There are initiatives for the Asian basin and studies referring to the establishment of the FTA USA - Japan. Regarding the organization models of the corporations, we can speak about four models: multinational model, which considers the foreign activity as an autonomous ensemble; international model, where external activities are designed as an annex of the parent company; global model, in which the directors compartment considers the external work only a measure to supply a unified market of the international type; transnational model, which focuses on training beyond national borders in order to optimize the adaptation reactions to differentiated market. This model replaces the traditional importance of the control with the cooperation, training establishments in order to know the behavior peculiarities, all being collective linked with human resources. The international management theorists ask the problem of creating a truly international staff with appropriate skills to any type of socio-human system. In conclusion it is obvious that XXI century trends product, at the socio-cultural environment, real construction acting as " future corporate." Competent staff shortages and the emergence of a diverse 348 Knowledge Based Organization 2008 International Conference population will constrain active managers to use the best available human resources. Given that the accumulation and recycling of the international management knowledge are very expensive, is the company advantage to secure loyalty of its staff. This system does not deny the need of structural flexibility which would satisfy the essential requirements of the enterprises at the improvement of the services level which will also cover the needs of the active population.
References [1] Bari, I. – Economy globalization, Economic Publishing House, Bucharest, 2005 [2] Bari, I. - Global contemporary problems, Economic Publishing House, Bucharest, 2003 [3] Câmpeanu, Virginia, Munteanu, G., Albu, C., Rădulescu, O. – The situation of World Economy, Romanian Academy Publishing House, the National Institute of Economic Research, Institute of World Economics, Bucharest, 2007 [4] Cociuban, A. - Global economy, Chişinău, 2007 [5] Lsărescu, M. - Economical refections, Romanian Academy Publishing House, Bucharest, 2001 [6] [6] Michalet, C..A. – Global capitalism, PUF, ediţia a 2-a, 1985 [7] [7] Munteanu, C., Horobeţ, A. – Transnational finance, All Beck Publishing House, Bucharest, 2003 [8] [8] Postelnicu, Gh., Postelnicu, C. - Economy globalization, Economic Publishing House, Bucharest, 2000 [9] [9] Stiglitz, Joseph E. - Globalization. Hopes and desilusions, Economic Publishing House, Bucharest, 2003
349 Knowledge Based Organization 2008 International Conference
RISK MANAGEMENT AND PREVENTION FOR FINANCIAL INSTRUMENTS BASED ON INTERNATIONAL STANDARDS OF FINANCIAL REPORTING IAS 32 AND IAS 39
TA Grosu Veronica, Prof. Bostan Ionel, PhD
’’Stefan cel Mare” University, Suceava, [email protected], [email protected]
Abstract The objectives and policies of economic entities to control financial risks, including policy related to the coverage for each category of significant transactions provided, is the use of hedge accounting. With regard to financial instruments to determine the level of detail of information to provide on this is an opportunity for the exercise of judgments which take into account the relative importance of these instruments. In this article, the authors have proposed to highlight and to describe groups of financial instruments in categories adapted to the nature of the information provided, necessary to the company’s management, taking into account factors such as characteristics of the instruments.
Keywords: financial instruments; international financial reporting standards, information asymmetry; management risk
1. Introduction The general aim of the paper is to improve our understanding of several issues related to the role of asymmetric information in financial markets and networks, with special reference to the issues of default and financial crises. Our aim is mainly theoretical: we want to improve our knowledge of some issues which are important for the understanding of financial systems. A first aim of the project is to
350 Knowledge Based Organization 2008 International Conference analyze the phenomenon of over borrowing in models with heterogeneous agents and non-exclusive contracts. This issue is especially important in international financial relationships because these contracts are typically characterized by limited enforceability. With asymmetric information and non-exclusive contracts there is an important moral hazard problem in international finance due to the role of financial institutions as lenders of last resort. In fact, given the implicit warranty created by international institutions, lenders may find individually optimal to monitor borrowers below the (socially) optimal level. One of the aims of the research project is to develop the analysis of this issue, also keeping into consideration its consequences of international capital flows and on financial crises. Financial crises also affect currency markets. Within the project, we plan to analyze models of exchange rate determination and to study the role of central banks, also taking into consideration the extremely important empirical results obtained in the last few years exploiting transaction data for currency markets. Although we think this accounting harmonization process is important and it can be the right way to improve informational efficiency of financial markets, we think it is necessary to further investigate some crucial topics. Which will be the degree of compliance with new accounting rules? Will the companies adopt just the compulsory disclosure or will they choose a voluntary disclosure too? The discussion on many accounting standards is still open and some more changes and amendments are likely to come.
2. The necessity and importance of the introduction of the international financial reporting standards IAS/IFRS Since 2005 the societies quoted have started to apply the international financial reporting standards IAS/IFRS for the drawing up and the publishing of the balance sheet. The objective of the IFRS, except for the fact that they aim at the harmonization of the ways of drawing up the financial statements, is that of drawing near the patrimony value close to its current value [1]. Applying the standards IAS 32 and IAS 39, which introduce, in particular a new classification of the financial instruments, has new significations within the accounting administration of the security 351 Knowledge Based Organization 2008 International Conference operations made by the use of the derived financial instruments. Particularly, the IAS 39 focuses on the assessment of the financial instruments specifying the application and utility area of the just value, as well as of the evaluation criterion. The world economic frame has suffered in the past few years an inevitable and irreversible process of transformation. The main directions of these changes are directed to the globalization of the markets, the technological process, the informational and communication system, the extension of the borders of the EU and to a series of reforms from the social and fiscal area that have given this context of reference more complex and more unstable. These new modifications have transformed the borders of the markets, canceling the physical and geographical distances as well as the commercial and financial barriers, allowing the free circulation of goods services, capitals and information [3]. In the process of internationalizing the economic interests of the entities, determined by the growth factors, the competitively and the competition, the operative horizons of the economic entities have extended, that have been put in the situation of facing the capital circulation and the commercial operations with connotations on the international market[6]. The application at the international level of a series of accounting standards for the drawing up and the presentation of the annual financial statements represents an important and unquestionable step, that comports various difficulties, at the practical level and not only. IAS 32 – Financial instruments: - presentation – treats all the types of the financial instruments, recognized and not recognized and it must applied for the contracts for the sale and the purchase of a non-financier element that can be discounted in cash through another financial instrument or through a change of financial instruments, as the contracts would be financial instruments. According to the IAS 32, the financial instrument is any contract that leads to a financial asset of an entity, as well as to a financial instrument of equity ownership or of debts of another society [***]. a) The financial asset is any active under the form of :money in cash available;The contractul right to be cashed, to cash money or othe financial asset;The contractual right to change financial instruments in potentially favorable conditions;A 352 Knowledge Based Organization 2008 International Conference
contract that will or can be discounted in instruments of equity ownership of an entity. b) the financial debt is the contractual obligation to: Deliver a financial asset ;Change financial instruments in potentially unfavorable conditions;To be discounted in instruments of equity ownership of the entity. c) the instruments of equity ownership represents any contract that proves the existence of a residuary interest in the assets of an entity after the deduction of all its debts. The obligation to issue a equity ownership instrument is not a financial debt, because it has as result an increase of the equity ownership and cannot generate a loss for the company. d) the just value – represents the amount with whichan asset can be changed or liquidated a debt in a closed transaction in objective conditions, between the parties who know and by the expression of the free will of this one. Instruments can be found in the IAS 39 „Financial Instruments – recognition and evaluation” which treats issues of recognition and the assessment of the financial instruments. This standard sets the recognition principles, evaluation and presentation of the information on the financial instruments from the financial statements, standard that increases significantly the use of the just value in the accounting of the financial instruments, especially in the asset part of the balance. IAS 39 distinguishes four classes of financial assets, more specific the assets owned at their just value in the profit and loss account, the available assets for the sale of the assets held until the due time and the loans and debts. The incorporated instruments derived – represent a component of a hybrid instrument that includes also a host contract non derived- having as effect the fact that the variation model of the cash flows generated by the combined instrument is similar to that of a derived instrument[2]. A derived instrument that is attached to a financial instrument, but that is based on a contract, can be transferred irrespective of the fact that that instrument is not an incorporate derived instrument,but a separate financial instrument[4].
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3. Covering against the risk (hedging) Any covering against the associated risk to the just value of an asset or recognized debt, such as modifications of the just value of some fixed rate debenture, as a consequence of the modifications of the market rates of the inetrests. At the accounting level, to proceed to an operation of security means that the company designates one or more financial assets, so that the variation of the just value would compensate partially or totally, the variation of the just value of the treasury flows afferent to the covered element[5]. The covered elements can be an asset, a liability, an engagement or a future forecasted transaction, that exposes the enterprise to a certain risk regarding the just value or the variation of the future treasury flows and that is designated, in the accounting of covering, as being covered. The covering instrument representd a designated derivate or another financial asset or libility (in cases well specified) from which it is expected that the just value or the treasury flows would compensate the variation of the just value or the treasury flows referring to a an elemnt designated covered. According to the IAS 39, an asset or a liability cannot be designated as a covering instrument, in a covering accounting, only if it covers the risks of fluctuation of the foreign exchange[7].
4. Supplement for the just value The notion of the just value is based on the presumption that the enterprise continues its activity, without the intention or the necessity to liquidate or to limit significantly its activities and without the need to make a transaction in unfavorable conditions. In this manner, the just value is not the size that an enterprise would receive or would pay with the cases of forced transactions or involuntary liquidation.Although the just value reflects the the credit risk of the instrument. On an active market, the just value is determined when there are quoted prices on this market, such prices represent the best estimation of the just value and they are used in order to measure the financial asset and liability. A financial instrument is considered to be quoted, on an active market if the prices that reflect normal market transactions can be obtained rapidly and regularly, within the context of a money market, of an intermidiary, of an evaluation service or of a 354 Knowledge Based Organization 2008 International Conference regulation agency[8]. The quoted price in the case of the assets held and of the liabilities to issue, is generally, the price offered for sale. The quoted price adequate in the case of the assets to buy or for the held liabilities is generally the price offered when buying.When the prices at sale or at purchase are not available, the just value correponds to the price of the most recent transaction, if there have not been significant changes in the economic conditions, between the date of this transaction and the date of the assesment[9].
5. Sequel – Cost of the depreciation and the method of the effective rate of the interest The method of the effective rate of the interest id the calculation manner of the liquidated cost and of the revenue and income regarding the interests, based on an effective rate of interest of a financial asset or liability. The effective rate of the interest is the rate at which, updating the future flows of treasury estimated, to receive or to pay, on the expected life duration of the financial instrument or when it is on a shorter period of time, it is obtained a value equal with the value written in the balance sheet. For the determination of the effective rate of the interest, the future flows estimated on the base of the contract terms referring to the financial instrument without taking into account the future expected losses[10]. International financial crisis involve also currency markets and movements of the exchange rates. In the last ten years, one of the most active fields of research in international finance has been the analysis of the relevance of the order flow in determining exchange rates. The canonical portfolio approach to the determination of the exchange rates is based on the equilibrium of the stocks of the relevant financial activities; currencies transactions per se are irrelevant. The empirical evidence obtained from transaction data on currency markets (they became available just recently) is sharply at variance with the classical wisdom. In fact, the order flow (the difference between buy and sell orders) is a powerful factor in determining variations in exchange rates[11].The high explicative power of the order flow for the dynamics of exchange rates has to be compared with the negative results obtained using models based on the classical portfolio theory. The empirical testing of these models has been a failure: they are 355 Knowledge Based Organization 2008 International Conference completely unable to explain (or forecast) the short and medium term dynamics of exchange rates. However, this assumption lends no immediate support to the idea that restricting capital inflows is beneficial. In general, models where borrowers cannot commit to repay loans are characterized by underinvestment with respect to first best allocations[12]. The recent recessions and financial crises experienced by countries that have undergone substantial liberalizations in the past ten years have lead some to advocate capital controls and the development of a domestic financial market.
6. Summary Nevertheless the discussion regarding some IAS critical points is still open both in Europe and US. Several authors doubt whether firms from Continental Europe will be in a position to adapt to new accounting standards and some authors expect that introduction of IAS should even bring short-term confusion and a reduction in transparency and results comparability until initial stage will be overtook The most relevant innovations introduced by IAS 32 and IAS 39 are the introduction of fair value disclosure for all financial instruments and the wider application of fair value criterion in the estimation of financial assets and liabilities. Underlying the issuance of these accounting standards there is an intense debate asking whether fair value is more informative than historical cost and vice versa, and whether fair value estimation reduces information reliability relative to historical cost (trade-off between relevance and reliability). We can ascertain that the international accounting practice and especially the international standards of accounting IAS/IFRS are oriented in certain cases, towards the elimination of the method of the cost in favor of the just value, that the IAS 32 and the IAS 39 define and present as we did previoulsy. In order to better understand the reasons that have determined the introduction of the evaluation criterion, of the just value, it is important to underline the different balance structures, in accordance with the IAS/ IFRS in relation with the valid accounting practices in our country or from other countries, that derive from the communitary directives.
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We can state that the just value constitutes an estimation corresponding to the evaluations from the balance sheet, estimation that should respect the general principle that states that the drawing up of the balance sheet or the faithful and correct representation; as a consequence this estimation must be credible. There is no doubt that, at first impression it could negative or at least regarded with a certain amount of scepticism, but understanding the reasons that are at the basis of this choice, the initial impression could be reviewed integrating this matter in a different function, that the international practice integrates to the balance sheet, knowing the implementation difficulties and the critical points of the new method of assesment.
References [1] Barlev Benzion, Haddad Jeffrey, Fair value accounting and the management of the firm, Critical Perspectives on Accounting, 14, pp. 383- 415, 2003. [2] Bhamornsiri Sak, Schroeder Renee, The disclosure of information on derivatives under SFAS No. 133, Managerial Auditing Journal, vol.19, n.5, 2004 669. [3] Bostan Ionel, Investigaţii financiare, Iasi ,Ed. Tipo Moldova, pp.158, 2007. [4] Bostan Ionel, Andronic Constantin, Measurement of the value added by internal audit, Conferinţa Probleme actuale ale situaţiei social-economice a Republicii Moldova,la Universitatea de Stat, Chişinău, Republica Moldova, 26 noiembrie 2005. [5] Bostan Ionel, Quality Assurance - prerequisite for demonstrating the value of internal audit", Conferinţa „Probleme actuale ale situaţiei social- economice a Republicii Moldova”,la Universitatea de Stat, Chişinău, Republica Moldova, 26 noiembrie 2005. [6] [6] Campedelli Bettina, L’internazionalizzazione della comunicazione economico-finanziaria d’impresa. Obiettivo 2005, Milano, FrancoAngeli, 2003. [7] Chtourou Sami,Les limites de l'application de la "full fair value" à la banque, Banque & Marchès, n. 67, pp.36-44, 2003. [8] Currarini, Sergio, Network Formation in Games with Spillovers, Università di Venezia, pp.135, 2004. [9] Grosu Veronica, Horga Petrică, Consideration concerning IFRS3, Analele Universităţii Oradea - Ştiinţe economice, p.1359-1365, 2008. [10] Kothari Sagar, Warner Bogert, Econometrics of Event studies, in B. Espen Eckbo (ed), Handbook of Corporate Finance: Empirical Corporate Finance, 357 Knowledge Based Organization 2008 International Conference
(Handbooks in Finance Series), Elsevier, North Holland, chapter I. pp.171, 2005. [11] Stittle John, The reformation of European corporate reporting, European Business Review, vol. 16, n.2, pp.139-151, 2004. [12] Pogliaghi Paul, Vandali Wilkye., Meglio Catarina. Basilea 2, IAS e nuovo diritto societario, Roma , Bancaria Editrice, pp.11, 2004. [13] *** Standarde Internationale de Raportare Financiara (IFRS) 2007.
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THE RELATIONSHIP AMONG ECONOMY, ORGANIZATION AND MANAGEMENT WITHIN NEW ECONOMIES
TA Parpandel Denisa, Asst. Prof. Belu Nicoleta, PhD, Asst. Prof. Voiculeţ Alina, PhD, TA Rizea Carmen
”Constantin Brâncoveanu” University, Piteşti, [email protected]
Abstract „In the concept of a new economy that should integrate all stakeholders such as man, society, environment and organization, knowing natural, human and social life is becoming a greater and more comprehensive concern”. - D.J.Hickson Humankind is undergoing a historic process of passage to a new society, a new economic system that is modernized by IT. The new society is characterized by major changes as there is an upturn of values where knowledge has become the most important manufacturing factor in modern economy, meaning the bases of power exertion, generating productivity increase and ensuring business competitiveness. One can be certain that the future world ensuing from the current reshaping of values, beliefs, economic and social structures, of political concepts and systems, in brief of world conception shall be different from what anybody could imagine.
Keywords: new economy, organization, management, knowledge, business competitiveness.
”In the new economy’s philosophy that should bring together all stakeholders, man, society, environment and organization, knowing natural, human and social life is becoming a more powerful and general concern”. D.JHickson
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Humankind is undergoing a historic process of passage to a new society and economic system. Huge, profound ignorance will find a proper answer by intensive and concentrated creative efforts. Only general progress in human knowledge will be able to open new horizons to people and peoples with a view to conceiving another type of society, respectively to achieving a new more efficient and profitable economic system.1 History is involving and will still involve radical changes in the core of economic science, rapidly reflecting in economy specialists’ training and people’s economic thinking. Contributing in the type of economy that is being built in the developed world, economy itself is searching for ways, directions and institutions that might help in a new economic system in our country as well, characterized and supported by: modernization, performance, competitiveness, equity, acting freedom and last but not least knowledge2. Presenting itself as a social activity organized in specialized institutions, individuals’ make-up along with other social products are becoming a distinct sector of human society economy that uses limited resources to exert control over the fundamental parameters of human development both at individual and social, community levels3. The new society has significantly changed the way all its activities take place and the changes are to reflect both upon existing activities and the emergence of new ones required by the newly-born context for today there is an upturn of values where knowledge has become the most important manufacturing factor in modern economy, meaning the bases of power exertion, generating productivity increase and ensuring business competitiveness. One can be certain that the future world ensuing from the current rearrangement of values, beliefs, economic and social structures, political concepts and systems, in other words all concepts about the world shall be different from what anyone might imagine today. Basic changes have already taken place in some fields, especially within the society and its structure. The new society being non-socialist and post-
1 Militaru Gheorghe, Organizational Behaviour, Ed. Economică, Bucureşti, 2005; 2 Niţă Dobrotă – ”Political Economics” Editura Economică, Bucureşti, 1997 3 Stiglitz J., Globalizatiom. Hopes and Deceptions, Ed. Economică, Bucureşti, 2003. 360 Knowledge Based Organization 2008 International Conference capitalist is a certainty. And as certain as that is the fact that knowledge shall be its primary resource, as Peter Drucker said. Knowledge revolution refers to the fundamental transition from physical resource-based economy to knowledge-based economy. The revolution is based on knowledge importance in modern economy. Over the last decades, major attention has been given to the economic importance increase of technology, information, economic processes, human capital, organizational competences – factors that are organically related to knowledge. The mutual thing is actually knowledge as it means the ways to individualize and operationalize all the above. Therefore, wealth and power in the 21st century shall firstly ensue from intangible intellectual resources and knowledge capital, and involve the passage to knowledge-based economy as it is seen as a very comprehensive and deep process generating changes in all economic activity components similar with the ones produced by the industrial revolution.4 The passage from capitalist to knowledge-based economy has been analyzed by numerous specialists that have discovered the following while entering the era of such economy: • The occurrence of ceaseless and fast changes, and the increase in uncertainty; • The revolution of informational technology and communications; • The improvement of technical processes; • The increase in productivity; • The enhancement of innovation-oriented competitiveness and collaboration; • The setting-up of global integrated economy; • The modernization and expansion of market demand. The new economy is mainly dominated by global influences and real-time speed of communications and information no matter the distances. Its main features are globalization and digital rendering
4 Ovidiu Nicolescu-„Knowledge-Based Management", Master Programme course, ASE, Bucureşti, 2005 361 Knowledge Based Organization 2008 International Conference characterized by providing intangible international transactions, commercial transactions and direct investment. Knowledge-based economy is essentially characterized by turning knowledge into raw material, capital, products, economy’s basic factors, and by economic processes within which the production, sale, purchasing, learning, storing, development, division and protection of knowledge become predominant and place decisive conditions upon profit raising and long-term economic support ensurance. Being part of an uncertain, complex and strongly competitive environment, an organization remains competitive only if it has developed its own collective intelligence and for that it has proper knowledge management. In such circumstances, organizations are compelled to redefine their own culture through organizational redesigning processes and strategy amendments.5 The concept of knowledge-based economy originates in 1984- 1988 and ever since it has registered sequential improvement stages starting from a series of features that it has: • systems and processes firstly based on intangible assets; • reasoning based on organizational competences as peformance sources; • mainly constructive, focused on changes’ conception and administration; • transforming intervention based on active behaviours and projects Therefore, the ideas help in considering that an organization’s main role is to get, protect, integrate and value specialized knowlege. The statements above are underlain by the trends in the passage from current economy to knowledge-based economy namely: • a company’s main functions end up being to conceive, protect and integrate knowledge; • transactions and activities involving high specialization levels and implicit knowledge get internal; • transactions and activities involving highly specialized explicit knowledge become external; • a company’s management and property converge;
5 Abell Angela, Competing with Knowledge, London, 2002; 362 Knowledge Based Organization 2008 International Conference
• the relationships among education, economic activities and personnel training are redefined. Thus, a knowledge-based company shall be simple, more flexible and intelligent, having fewer hierarchical levels. The passage to knowledge-based economy, the set-up and operation of knowledge-based companies cannot be done without knowledge-based management. Knowledge-based management is a key-process that companies, industries and also countries use in order to reach high economic performance for involved population, by fully valuing the potential profits brought about by the changes in digital technology and the Internet. The definition above attempts to highlight the following traits: 6 • knowledge-based management is tackled especially in connection with top informatic technology; • major importance is rendered to innovation and the knowlege related to it; • there is concern not only with company management but also with sectorial and national management. Another approach of knowledge-based management refers to organizations’ devotion to develop knowledge production and flow, to transmit and use it with a view to creating economic value. The following relevant elements result from the analysis of the above definition: • it is centered upon knowledge viewed as a whole irrespective of its type; • it emphasizes multiple knowledge-related processes (production, transmission, usage, valuation). The passage to a new economy, the one based on knowledge, deeply influences the contents and manifestation of management in all its constituents and at all society levels, and knowledge is placed in management first line as it becomes an essential resource, a major
6 Baltac V., Information Society and its Challenges to Emerging Economies, Application Trends and Social Issue , Conference called ”Tehnology Foresight Summit 2003, UNIDO, BUDAPEST; 363 Knowledge Based Organization 2008 International Conference asset, a principal product and a strategic advantage to companies, supposing a new type of management. 7 Approaching knowledge as part of management refers to its sources, types, dimensions and characteristics at several levels. Management keeps its reason of being, its organizational purpose rendered by competitively ensuring the company’s operation and high performance. The theory of knowledge-based management shall have a clear multidiscipline character. Besides managerial elements, it comprises economic, informatic, sociological, technical and juridical knowledge by means of its character. 8 It does not mean the preoccupations and achievements related to management though at an early age are not significant, on the contrary, knowledge-based management runs the risk of becoming old-fashioned if it does not have a solid theoretical basis. Knowledge-based management is an ongoing endeavour which lasts as long as an organization does. Knowledge resource has a regime similar to human and financial (not material) resources, that is, its entire use does not always succeed in management. Taking account of that situation along with knowledge role in a knowledge-based company, knowledge should permanently be the focus of an organization’s decision-making and managerial activities. Any management breakdowns at that level can prove fatal. It is very useful to develop special leadership focused on specialists and knowledge along with creating tactical, explicit organizational culture in an organization. Knowledge management is costly but its ignorance is even more so. It involves significant expenses by its very intricate logistics, specialists and continuous updating processes. Nevertheless, its lack can be more costly, leading to company bankruptcy on medium or long term.
7 Pugh D.S, Organizations’ Management , Ed. Codecs, Bucureşti, 1989
8 Nica Elvira, Performance Management, Ed. Economică, Bucureşti, 2006; Nicolescu Ovidiu, Company Organizational System, Ed. Economică, Bucureşti, 2003;
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Well-run companies are aware of that in a perseverent way, setting up managerial, informational, organizational and motivational procedures to ensure a good ratio between efforts/results and respectively costs/profits. Therefore, the new society is characterized by major changes in all its activities and the changes are to be found both in existing and emerging activities required by the new context. The developing limiting factor shall be increasingly related to knowledge, the human ability to aquire and develop new technology, to use it in new activity fields for new products and services. Thus, there is an intrinsec connection among the new knowledge- based economy, organizations and management, for knowledge is the element rendering unity and long life. The relevance of knowledge-based organization concept in our country ensues from its involvement in the progress towards informational society – society of knowledge – which is a prerequisite for long-lasting growth. Over the last years, education in knowledge- based economy has played an increasingly important role since more and more organizations are concerned with knowledge and technology transfer in the economy by means of scientific, technical sites and parks. Society should invest more and more in intellectual capital which can multiply at high speed, in developing knowledge-based domestic market, in creating a genuine European scientific research area, in making social dialogues more dynamic.
References [1] Abell Angela, Competing with Knowledge, London, 2002. [2] Baltac V., Information Society and its Challenges to Emerging Economies, Application Trends and Social Issue , Conference called ”Tehnology Foresight Summit, UNIDO, BUDAPEST, 2003. [3] Militaru Gheorghe, Organizational Behaviour, Ed. Economică, Bucureşti, 2005. [4] Nica Elvira, Performance Management, Ed. Economică, Bucureşti, 2006; Nicolescu Ovidiu, Company Organizational System, Ed. Economică, Bucureşti, 2003.
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[5] Nicolescu Ovidiu, Veboncu Ion, Managerial Methodologies, Ed.Tribuna Economică, Bucureşti, 2001. [6] Nicolescu Ovidiu, Knowledge-Based Management, Master Programme course, ASE, 2005. [7] Pugh D.S, Organizations’ Management , Ed. Codecs, Bucureşti, 1989 [8] Stiglitz J., Globalizatiom. Hopes and Deceptions, Ed. Economică, Bucureşti, 2003.
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EXTENDING FRANCHISING OPERATIONS WITHIN NEW ECONOMIES
TA Parpandel Denisa, Asst. Prof. Belu Nicoleta, PhD, Asst. Prof. Voiculeţ Alina, PhD
”Constantin Brâncoveanu” University, Piteşti, [email protected]
Abstract “To franchise means to allow other people to succeed as we have, to repeat success” - J.M Leloup The new economy shall ensure a huge advantage to emerging markets and the economies in isolated world parts, as high technology can remove social and geographic barriers thus allowing people to directly communicate and not stay far from one another because of distances, cultures and economic strategies. Being a mature system, franchising operations are based on the most powerful relationships in nowadays business environment. Many franchisers honour and respect their franchisees and in exchange the latter work very well and support franchising. Many franchising systems provide assistance to franchisees in finding the best ways to improve system products and services.
Keywords: franchising, globalization, business environment, new economy, market
After a spectacular progress in the 20th century, franchising is the way an economic activity takes place in order to reach successful partnership, relying on the close relationship between a franchiser ( - the owner of the successful business) and the franchisee ( - the beneficiary of the business) by means of which the former extends their market quota selling a diverse, profitable system to an investor (franchisee). 367 Knowledge Based Organization 2008 International Conference
Franchising should be understood and defined from its economic perspective which is the best to provide the picture of commercial operations meant to develop a franchised economic activity. The fundamental function of franchising is its ability to transpose to a market some business that has proved successful on another market in the same conditions and parameters.1 [5] Franchising operations’ economic essence is based on the set of commercial techniques and operations by which the successful business owner authorizes another trader to start a business which is just like their own by using their commercial marking and expertise.2 [8] Brian Duckett stated in an article published in the ”Strategic Direction” magazine that the most meaningful comparison one should make in order to best understand franchising operations is the ”cloning” genetic procedure. Franchising renders a transfer of knowledge ( know-how ) and differentiating markings from one trader to another so that the latter could set up business that is identical to the former’s.3 [2] A famous North-American businessman thinks franchising is the ”heart of modern entrepreneurship system”.4 [3] To give a short, clear and concise definition of that marketing and distribution system is almost impossible, yet comparing the opinions of some specialists, entepreneurs, organizations and authorized in- field associations may lead to a general opinion and favourable understanding of all those interested in studying and applying that important system of world economy. Humankind is undergoing a historic process of passage to a new type of society in the context of globalization, to a new system based on cibernetics and informatics.5[7]
1 Gheorghiu Ghe. – Franchising Operations, Ed.Lumina Lex, Buc.2002, pag.7 2 John Stanworth, Celia Stanworth – Franchising as a Small Business Growth Strategy , International Small Business Journal , Dec.2004, vol.22, pag.539-559, - ISI REVIEW – Publisher:.SAGE PUBLICATIONS 3 Brian Duckett - Business Format Franchising, Journal Strategic Direction, Publisher : Emerald Group , 2008 , vol.24, pag.3,4, DOI :101108/02580584829 – ISI REVIEW 4 Jim Coen- Success in Franchising. Goals. Article published in ”Franchise Magazine”, 28 Dec.2006 368 Knowledge Based Organization 2008 International Conference
High and deep ignorance shall find its proper answers by a well- supported effort. Only general progress of human knowledge will be able to open new horizons to people with a view to conceiving a new society type, respectively to achieving a new more efficient and profitable system.6 [6] New society brings about major changes of the way activities take place according to the emerging context as nowadays there is an upturn of values, where knowledge has become the most important manufacturing factor in modern economy, being the bases of power exertion, generating productivity increase and ensuring business competitiveness. One can be sure that the future world ensuing from the current rearrangement of values, beliefs, economic and social structures, political concepts and systems, conceptions of the world shall be different from what anyone might imagine today. Basic changes have already occurred in some fields and especially within the society and its structure. The new society being non-socialist and post-capitalist is actually certain.7 [9]. Information’s economy, knowledge-based economy, digital economy, dot-com economy, net economy, Internet economy, immaterial economy, virtual economy etc. are currently encountered notions to refer to a major technological change – information and knowledge become the most important manufacturing factor as shown above and new technology generates the share of productivity growth. Using TIC becomes a competitive advantage source and provides an opportunity to change the way people work in an organization. Although at present one is more functional sector- and department- oriented, the future of TIC-based management shall be product orientation.8 [1]
5 Parpandel Denisa, Codreanu Diana- Knowledge-Based Organizations – Intelligent Players of Informational Society, The Knowlege Based Organization, Academia Forţelor Terestre, Sibiu, 25.11.2007, pg.153 6 Harrison Petter, NewsMonth Magasine, Dec.2006 7 Stigliz E., Senior Vice President and Chief Economist, Public Policy for a Knowledge Economy, World Bank, London, 27.09.1999 8 Baltac Vasile- Economic System’s Weakness in the Internet Context, paper delivered in the Romanian Academy’s Information Science and Technology section, 26 March 2001, published in the Romanian Review for Informatics and Automatics, vol.11, nr.4 369 Knowledge Based Organization 2008 International Conference
Promoting new economy in Romania means a challenge of the future, an approach to the standard of developed economies and Euro- Atlantic structures both by general features and long-term trends. In order to accomplish new economy, it is necessary that the economic policy options should immediately apply as medium- and long-term strategies (25-30 years) to ensure continuity and compliance of economic actions. That would also contribute in increasing the efficiency of Romania’s limited resource management. Setting up the strategies should take place between 2007-2009 and go on until 2010-2011.9 New economy shall provide a huge avantage to the emerging markets and isolated country economies, advanced technology can lead to the removal of social and geographic barriers allowing people to be in contact and communicate directly, as today they are far from one another because of distances, cultures and economic strategies. New economy is changing the world in a significant way. A single small step taken by a hundred of people counts more than a huge step taken by a single man. Extension to a new market is based on the analysis of general indices that are typical of the field. Most companies first ask for a market survey that should best reflect current situations: international and local brands, the number of their locations, their spread at national level, promotion concepts, fulfilment degree in certain market segments. The franchising operation system is mature and relies upon the strongest relationships in nowadays’ business environment. Many franchisers honour and respect their franchisees and in turn the latter work well and support the franchising system. Many franchising systems offer assistance to franchisees in finding the best methods to improve products and services within the system. A main reason of franchisees’ success is the relationship between franchiser and franchisee. As a group, franchisees can often achieve things that independent businessmen or individuals cannot. Group
9 IT National Strategy, 2007 370 Knowledge Based Organization 2008 International Conference aquisition power, group research are just a few of the consequence examples. Choosing a franchise is really challenging as numerous types have already developed so far and those making up a theory of the phenomenon seem to have their own classification modalities each. Generally speaking, there are two main franchising types that almost everybody agrees with. They are franchising-format business (formed business) and product or brand franchising (brand). Format franchising involves a more complex relationship between franchiser and franchisee including location selection, training, product provision, marketing planning, assistance planning for financing the franchisee’s business. Product or brand franchising involves that the franchiser is the owner of the name or brand and sells those rights to the franchisee.10 CEE Regulation no.4087/30.11.1988, art.5, point ”a” uses over 80 commercial activities. The franchising of product and service market trade, the number and diversity of activity sectors providing goods and services to customers by franchising are growing. As a form of commerce and marketing, the present franchising system is interdependently connected with information and telecommunication technology. A recent article published by the famous ”Wall Street Journal” showed that technology development such as the Internet and mobile phones have such a strong impact on franchising systems that fundamental changes are already taking place in the business structure of franchisers and franchisees. Whereas franchisees would have to be constantly present in franchised units in order to manage operations, nowadays franchisers not only allow units to be administered from a distance, but also build business models that franchisees can run from their own homes, although companies may be in different locations. Those choosing remote monitoring are the franchisees who want to have a second job (either they are employed or run several franchised units) or are at the age when they want to work at a slower pace.
10 Driga Corina, quoted work, pag.33 371 Knowledge Based Organization 2008 International Conference
They can run the unit or units thanks to the Internet, computers and TREO mobile phones which can practically do everything, from being mere phones, to sending messages and pictures or movies, thus franchisees have the time and availability to value other skills as well, open other units either within the same network or other franchising systems.11 Another consequence is renouncing to the old fundamental franchising rule stating ”one franchisee means one unit”, as Ana Dungan stated and was quoted by ”Wall Street Journal”, the author of ”Franchising 101”, dean assistant at Pittsburgh University. The unstable economy of the USA over the last years has made franchising and its tested and integrated business system and concepts become a more and more attractive business model. According to the data of International Franchise Association, over 1,000 new franchising systems were launched in the USA between 2003-2006 in various fields, from the field of real estate to the one of constructions and healthcare. That development has generated competitiveness among franchisees regarding the ability to best run the business and the result has ben in the franchisees’ obligation to provide flexible business models. Franchisers themselves are adapting to modern times and want to attract in their systems the most competent franchisees in the digital era of business where remote work is more and more accepted both by those born right after the Second World War (the so-called baby boomers) and by the younger ones who want their work schedule to be as flexible as possible. Therefore, when one says ”new economy”, one refers to a ”world where people work with their brains instead of their hands, a world where communication technology creates global competition not only for wearable shoes and laptop computers but also for bank loans, invstment and other services that cannot be wrapped and transported, a world where innovation is more important than mass production, a world where investment buys new concepts or means to create new machines, a world where rapid changes are constant, such a different world can be described only by a revolution”.
11 www.hotnews.ro , June, 2008 372 Knowledge Based Organization 2008 International Conference
Encyclopedia of the New Economy
References [1] Baltac V., Information Society and its Challenges to Emerging Economies, Application Trends and Social Issue , Conference called ”Tehnology Foresight Summit 2003, UNIDO, BUDAPEST. [2] Brian Duckett, Business Format Franchising, Journal Strategic Direction, Publisher : Emerald Group , vol.24, pp.3,4, DOI :101108/02580584829 – ISI REVIEW , 2008. [3] Coen Jim, Success in Franchising. Goals, article published in ”Franchise Magazine”, 28 Dec.2006. [4] Driga Corina, First Steps in Franchising, Ed. C.H.Beck, Bucuresti, 2006. [5] Gheorghiu Ghe., Franchising Operations, Ed.Lumina Lex, Buc. pp.7, 2002. [6] Harrison Petter, NewsMonth Magasine, Dec.2006. [7] Parpandel Denisa, Codreanu Diana- Knowledge-Based Organizations – Intelligent Players of Informational Society, The Knowlege Based Organization, Academia Forţelor Terestre, Sibiu, pp.153, 25.11.2007. [8] Stanworth John, Celia Stanworth Franchising as a Small Business Growth Strategy , International Small Business Journal , vol.22, pp.539-559, - ISI REVIEW – Publisher: SAGE PUBLICATIONS, Dec.2004. [9] Stiglitz J., Globalizatiom. Hopes and Deceptions, Ed. Economică, Bucureşti, 2003. [10] http www.hotnews.ro , June, 2008.
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A COMPARATIVE STUDY ON CORPORATE TAXATION IN ROMANIA AND IN OTHER EUROPEAN UNION MEMBER STATES
TA Popa Ionela, TA Pietraru Alina
“Constantin Brâncoveanu” University, Piteşti,
Abstract According to Romanian tax regulation, companies are obliged to pay taxes and other contributions, even though, some of that charge other tax-payers. The integration of the tax system in the decision making process of companies, plays an extremely imporant role so as to, under its influence, the entity behivior changes as well as the initial situation. Question such as “What are the advantages and disadvantages implied by the reform of the Romanian fiscal law?” „Is the Romanian tax system harmonized with the communitarian ones in the field?” „What is the impact of the tax system on the competitiveness of the Romanian entities?” are answered in different ways. This is our point of view…
Key words: fiscal, budgetary, reform, integration
1.Introduction Romania’s passage from state economy to market economy where the major role is played by free initiatives, private property and whose mechanism involves the organic collaboration and union of market laws with state actions, has proved a complex, long, demanding process. In a market-oriented economy where economic activities result in profits and satisfaction, economic agents’ authonomy should be understood as a huge responsibility they have towards themselves and the society.
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The goals of the economic and social reform include the reform of the financial, fiscal system, unblocking economic structures, reorganizing economic activities, setting up institutions that support economic reform. The scope of all fiscal activities is rendered by the fiscal system made up of all the taxes and incomes that the state charges through its specialized bodies according to legislative sources and the result is in the state’s debentures upon tax-payers. The fiscal reform aims at building a coherent, profitable and efficient fiscal system in order to meet market economy passage requirements. Fiscal duties’ distribution also aims at obeying taxation principles. The fiscal system role in the Romanian economy is to ensure public economy’s financing by means of fiscal taking and other ways meant to allow the state to intervene in national economy to adjust economic cycle negative fluctuations. The fiscal system as a set of principles, rules and organization ways is visible in normative laws and acts issued to collect state incomes and to regulate their spending. It also renders the state’s ability to finance expenses and protect the weak. Fiscal resources are the main financing source allowing the state to intervene on the market by subsidies, investment and, indirectly, the total value of allocations from real economy.
2. Current features of the fiscal system applied in Romania’s enterprises Integrating fiscality in economic agents’ decision-making is specially important because under its influence enterprise behaviour and original states change, although they were considered normal before the fiscal pressure intervention. According to Romanian fiscal norms, enterprises must pay taxes and other duties even if some are paid by other tax-payers. Those benefiting from these taxes are the state budget, local budgets, social security budget or special fund budget. Some of the taxes are: added value tax, excises, income tax, non-resident individuals’ income tax, customs fees, metrology fees, consular fees, notary stamp fees, judiciary stamp fees, registration fees for human use medicines and biological products, sanitary- veterinary fees, standardization activity tariffs, profit tax, 375 Knowledge Based Organization 2008 International Conference subsidiaries’ revenue tax, small enterprises’ revenue tax, dividend tax, gambling fee, international transport authorization fee, nuclear activity authorization fees and tariffs, building tax, field tax, transport means fee, show tax, extrajudiciary stamp fees, advertising fees, unemployment benefit fund, social state security fund, public health fund, health social security fund, special social joint responsibility fund for the disabled, contributive payments for holidays and indemnities, duties to contribute in guaranteeing salary debentures, special fund for ensurance holders’ protection, civil aviation special fund, special fund for energetic system development, forest rehabilitation fund, special fund for frontiers’ improvement and updating, banking deposits guaranteeing fund, hunting and game protection fund, builders’ social protection fund, cinema fund, national cultural fund, land improvement fund, economic reform fund, national joint responsibility fund, lakes’ and rivers’ rehabilitation fund, national metallurgy joint responsibility, environment fund, petrol products’ special fund. The above list does not apply to all enterprises as many duties (mainly special funds) are the responsibility of enterprises that have certain activities or goods. Moreover, the list is not closed: Romania’s fiscal law growth adds new duties to the list or sometimes, yet rarely, removes some taxes or fees. The overall financial resource collection trend in our country is represented by the share of indirect taxes in fiscal resources, respectively total resources that are superior to the share of direct taxes. Yet, one can notice the following growth in economic agents’ direct fiscality:
Table 1: State budget income structure - thousand Lei - INDICATOR 2004 2005 2006 2007 2008 NAME Accomplish Accomplish Accomplish Programm Suggestions ments ments ments e TOTAL 32.195.363 36.599.500 40.698.109 57.836.155 69.116.473 INCOMES 1.Current 32.107.071 36.530.200 40.512.983 57.310.211 69.000.313 incomes Fiscal incomes: 30.252.701 34.531.200 37.900.155 52.491.215 62.287.393 376 Knowledge Based Organization 2008 International Conference
Of which: Income, profit and capital revenue tax 6.441.613 8.688.100 9.281.888 12.783.340 14.477.345 from businesses - profit tax 5.987.900 6.945.300 7.905.474 11.382.000 12.821.300 - other income, profit and capital 453.713 1.742.800 1.376.414 1.401.340 1.656.045 revenue taxes from businesses
Source: Made up by the author according to the information in www.mefromania.ro and 2006 Statistical Yearbook, Chapter 21, ”Finance”
It can be seen that the amount of cashings from direct taxes applied to businesses has increased continuously, their share in total budget revenues keeping relatively constant (about 20%). According to the changes in fiscal legislation starting on 1 January 2005, namely tax basis reduction from 25% to 16%, it ensues that the legislative step has not negatively influenced the amount of cashings from profit taxes (their favourable development being rendered by the increase in income basis). The perspective might lead to the idea that the 16% quota has had a favourable effect upon the growth of Romanian enterprises’ competitiveness. Yet, certain significant details should not be omitted: (1) the values in the present analysis are shown in current prices (they do not take inflation into account); (2) the fiscal code has diminished the chaos in the fiscal field (gathering separate legal directions), but there are still legislative changes because of law-makers’ versatility thus reducing certain tax quotas while growing income basis according to current interests; (3) Romania ranks first in Europe in terms of taxes and fees. The World Bank has identified around 100 fees and taxes in Romania paid by native companies. Besides these duties, companies must pay other 100 non-emphasized fees (tariffs, duties, commissions, stamp fees etc.). All that makes one think that even apparently the state seems to stimulate enterprises by its policies and practically the impact of the fee and tax system upon Romanian enterprises’ competitiveness is negative. 377 Knowledge Based Organization 2008 International Conference
A confirmation in this respect is the report called “Doing Business 2009” of the World Bank that surveys 10 indices analyzing the business evironment in 181 states; according to it, Romania ranks the 47th in starting business. However, it ranks among the first 40 in terms of: starting business, making loans, efficiency in settling law disputes, investors’ protection, foreign trade, but one should not neglect that Romania’s weakness is its number of taxes: 131 (the most in all analyzed countries) and the time necessary to pay them (202 hours/year, ranking the 146th).
3. Complying companies’ fiscality within the European Union An analysis of the European Union made by Eurostat1, the European Statistics Agency, shows that Romania had the lowest income tax (16%) in all EU member states in 2007. The 16% tax rate applied to revenue tax is not yet the lowest. The lowest are applied in Bulgaria, Cyprus (10% either), Ireland (12,5%) and Latvia (15%). Romania ranks the fifth, immediately afterwards. The other side of the classification where there are the highest income taxes includes the following states: Denmark (38,7%), Italy (37,3%) and Malta (35%). Low taxes have influenced the amount of revenues obtained. With a low revenue tax and the same low level of profit tax (as compared to the other EU member states), revenues ensuing from taxes have also been low. That is the reason why Romania had the lowest level of revenues from taxes and fees of all EU member states in 2005. Approaching fiscality relatively does not have pragmatical importance without a correlation with approaching it in real terms. Comparatively analyzing the revenue share in GDP in all European Union member states leads to the idea of a moderate fiscality level in Romania. Figures rank Romania the 26th among EU member countries that had an average GDP/capita of 23,600 Euros at purchasing power parity. Romania overdid only Bulgaria in this indicator which had 8,800 Euros/capita at purchasing power parity or 37% of EU average.2
1 Wozowczyk Monika, Paternoster Anne, Lupi Alessandro – “Statistique en bref 23/ 2008”, Economie et Finances, Eurostat, 2008 2 Andrei Ciltaru- Eurostat: In 2006 Romania reached 38% of the EU’s average wealth level, Bloombiz, 27 June 2007 378 Knowledge Based Organization 2008 International Conference
Table 2: Public financial resources of EU countries between 2000-2006
Public resources – GDP share Public resources in Euros/ capita 2000 2001 2002 2003 2004 2005 2006 2000 2001 2002 2003 2004 2005 2006 EU- … … 44.4 44.4 44.2 44.7 45.2 … … 9,054 9,161 9,520 9,980 10,605 27 EU- 45.8 45.1 44.5 44.5 44.2 44.8 45.3 9,208 9,411 9,588 9,700 10,070 10,538 11,182 25 BE 49.1 49.6 49.8 51.1 49.1 49.9 49.1 12,072 12,496 12,900 13,534 13,655 14,211 14,623 BG … … 39.6 40.3 42.0 41.6 40.3 … … 839 917 1,075 1,179 1,317 CZ 38.1 38.7 39.5 40.7 42.2 41.3 40.7 2,281 2,617 3,101 3,230 3,649 4,051 4,518 DK 56.5 56.0 55.4 55.6 57.3 57.8 56.2 18,374 18,737 19,052 19,429 20,789 22,205 22,756 DE 46.4 44.7 44.4 44.5 43.3 43.5 43.8 11,650 11,482 11,548 11,657 11,614 11,848 12,350 EE 36.2 35.0 36.0 36.4 35.9 35.4 36.6 1,611 1,772 2,052 2,337 2,534 2,941 3,602 IE 36.3 34.3 33.2 33.8 35.2 35.4 37.1 9,987 10,398 11,014 11,820 12,886 13,785 15,246 EL 43.0 40.6 40.0 39.3 38.2 38.0 39.5 5,428 5,463 5,738 6,104 6,388 6,804 7,610 ES 38.1 38.0 38.4 38.2 38.5 39.4 40.4 5,987 6,348 6,780 7,115 7,590 8,256 8,992 FR 50.2 50.0 49.5 49.2 49.6 50.7 50.8 11,901 12,239 12,434 12656 13,177 13,858 14,408 IT 45.3 44.9 44.4 44.8 44.2 44.0 45.6 9,479 9,843 10,055 10,380 10,566 10,677 11,435 CY 34.7 35.9 35.9 38.6 38.8 41.2 42.7 5,035 5,532 5,637 6,281 6,660 7,419 8.049 LV 34.6 32.5 33.4 33.2 34.7 35.2 37.0 1,238 1,286 1,414 1,423 1,679 1,993 2,613 LT 35.9 33.2 32.9 32.0 31.8 33.1 33.4 1,267 1,294 1,425 1,523 1,679 2,006 2,338 LU 43.6 44.2 43.6 42.4 41.3 41.7 39.7 21,855 22,616 23,459 24,130 24,761 26,897 28,421 HU 43.6 43.2 42.4 41.9 42.4 42.1 42.6 2,220 2,522 2,948 3,091 3,457 3,714 3,806 MT 34.8 36.6 37.7 37.9 41.0 42.0 41.6 3,769 4,007 4,274 4,208 4,576 4,929 5,148 NL 46.1 45.1 44.2 43.9 44.3 44.9 46.7 12,113 12,586 12,738 12,920 13,377 14,002 15,257 AT 49.8 50.7 50.0 49.3 48.9 48.2 47.8 13,073 13,615 13,662 13,738 14,136 14,372 14,893 PL 38.1 38.6 39.2 38.4 36.9 39.0 40.1 1,847 2,145 2,150 1,926 1,975 2,499 2,855 PT 40.3 40.1 41.4 42.5 43.1 41.7 42.5 4,803 5,037 5,404 5,647 5,919 5,877 6,225 RO 43.8 36.7 37.6 32.1 31.2 32.2 33.2 788 736 835 776 875 1,185 1,492 SI 43.6 44.1 44.6 44.4 44.2 44.5 44.1 4,634 4,969 5,395 5,635 5,921 6,285 6,682 SK 38.3 37.8 36.6 37.7 35.6 35.6 33.9 1,569 1,656 1,772 2,051 2,241 2,519 2,767 FI 55.2 52.7 52.9 52.4 52.3 53.0 52.5 14,119 14,212 14,636 14,668 15,237 15,888 16,670 SE 60.9 58.3 56.6 57.2 57.5 58.7 57.9 18,026 16,218 16,417 17,205 17,974 18,714 19,511 UK 41.2 41.5 39.9 39.5 40.0 41.2 41.9 11,005 11,332 11,279 10,729 11,656 12,336 13,229 IS 43.6 41.9 41.7 42.8 44.2 47.6 45.9 14,596 12,982 13,740 14,373 16,113 21,039 19,981 NO 57.7 57.4 56.3 55.5 56.6 57.4 58.7 23,447 24,299 25,297 24,198 25,661 30,127 33,665 Source: Eurostat, Economie et finance, Statistique des administrations publiques
Ever since 1 December 2007, the European Union has had a conduct code of enterprises’ fiscality made by ECOFIN. It is a juridical document with an undoubtful political power which, if adopted, the member states have been applying in order to remove existent fiscal steps that generate unfair fiscal competition and thus they prevent the introduction of any novelty effect step to produce such a result. This issue is being tackled with concern at present and the European Union’s fiscal policy aims at achieving some important goals such as free circulation of capital, competitiveness, economic growth and labour force employment at the same time avoiding harmful fiscal competition among its member states. 379 Knowledge Based Organization 2008 International Conference
In this respect, the 2008 issue of Brussels Fiscal Forum – annual conference on general concern fiscal aspects in Brussels between 7- 8 April this year – has focused on the way in which fiscal policy may influence economic growth and competitiveness in Europe leading to the set-up of a European state of wealth, modernization, innovation and durability. “Cooperation among fiscal authorities, coordination of policies in member states and compliance of certain elements in fiscal systems where possible can contribute in the improvement of our enterprises’ competitiveness”3, stated Mr.László Kovács, European commissioner for customs taxation and union. Companies’ direct fiscality applied within the European Community does not require any compliance or coordination and is entirely left at member states’ will according to subsidiary-related principle. The situation is different when direct fiscality has an effect upon the four freedoms included in the EC Treaty (free circulation of goods, people, services and capital) and upon enterprises’ and people’s right to settle down. A debated upon mechanism in Brussels is the common taxation basis for companies as it makes their profits relocate on manufacturing countries and large companies want to pay taxes in the country having the lowest tax rates. The CCCTB concept (Common Consolidated Corporate Tax Base) brings about real competition among states as fiscal mechanisms take account of each one’s authonomy. Applying the common base means the use of commom rules in the calculation of taxable base of companies’ profits in several member states. For instance, fiscal losses shall be treated the same in all member states if a company has chosen to apply CCCTB. Fiscal losses can typically be reported in the future during an indefinite period of time namely they cannot be replaced by the profits achieved previously. However, implementing the common base proves difficult because of the different ways a single operation can be treated. Thus, there are two options for goods that are subject to liquidation: goods’ individual amortization by applying different depreciation rules for
3 www.ec.europa.eu 380 Knowledge Based Organization 2008 International Conference each liquidation according to its type and by applying a common depreciation rule for all the company’s liquidations. Another aspect that must be settled in order to create a common base is the method to avoid double taxation – granting a fiscal loan or excluding incomes. Member states do not currently have a common procedure to avoid double taxation whereas in terms of implementing the common base there must be a method aimed both at common base principle and the provisions to avoid double taxation. The most important aspect that should be tackled is general methodology namely the reference point to calculate common taxation base. Thus, two suggestions have been made so far according to which common taxation base should be calculated either starting from the difference between final balances and initial balances, or from the profit and loss account of a company and then, the most favourable option to all member states is to be adopted. Romania’s Businesses Association (AOAR) has asked the authorities to take official steps regarding the suggestions of the Fench leadership of the European Commission which aims at companies’ taxation: “Some taxation systems are to be introduced that regard either the payment of all company taxes in its production country followed by a profit relocation in its native country, or the payment of all company taxes in its original country. Thus, we are trying to limit profit transfers within the most favourable areas from the fiscal perspective. We just have to know what Romania thinks about this debate”, stated Florin Pogonaru, the president of AOAR
4. Conclusions Any government assuming the responsibility to adopt steps in the fiscal field must start from Romanian real facts as well as from its general objectives including those regarding the compliance with European Union’s provisions. Real economy must take account of a clear fiscal conception regarding the proper encouragement of business environment, tax- payers that do not forget about their taxes and fees and are competed by the conduct of other tax-payers that break the law. As a conclusion, one can state that fiscal regulations must be carefully analyzed not only from a strictly accounting perspective, but 381 Knowledge Based Organization 2008 International Conference also according to the duties they involve upon the fundamental financial indices that characterize a company (or a certain investment project, if any) and the overall investment and financing decisions. Thus, managers shall be able to identify the most effective ways to increase their company value finding the best fiscal solution.
Referances [1] Dragotă V., Ciobanu AM., Obreja L., Dragotă M., Financial Management, Ed. Economică, Bucureşti, 2003. [2] Stancu I., Finance, Ediţia a III-a, Ed. Economică, Bucureşti, 2003. [3] Ţâţu L., Şerbănescu C., Ştefan D., Marinescu C., Nica A., Fiscality from Law to Practice, Ed. All Beck, Bucureşti, 2004. [4] Wozowczyk Monika, Paternoster Anne, Lupi Alessandro – “Statistique en bref 23/ 2008”, Economie et Finances, Eurostat, 2008. [5] Andrei Ciltaru- Eurostat: In 2006 Romania reached 38% of the EU’s average wealth level, Bloombiz, 27 June 2007. [6] Buruianǎ Dan- “European Common Taxation Base of Companies”, Financiarul, 9 September 2008. [7] * * *Law no. 571/2003 regarding Fiscal Code, issued in MO no. 735/2004 with subsequent amendments and changes, [8] * * *www.mfinante.ro [9] * * *www.europa.eu.int [10] * * *Doing Business 2009.
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COMPATIBILITY BETWEEN ROMANIAN ECONOMIC AND EU ENTITIES IN TERMS OF DOCUMENT MANAGEMENT
TA Şerban Mariuţa, TA Elena Burtea
“Spiru Haret” University, Bucharest
Abstract: The document presents some of the key elements of using the document management systems (DMS) of the economical organizations, in order to become efficient and compatible in their activities with the ones in the U.E. The documents management system is a flexible solution that makes the collaboration of the managers more flexible and simplifies the data input requirements.
Key words: documents management system, electronic documents, DMS statistics, metadata, data base, document collections, content management system, and digital actives management.
1. Introduction A document management system is a set of programs used for finding and store electronic documents and/or images of the documents on paper. The document management system is a flexible solution which makes the collaboration of managers more efficient and simplifies the needs to master the data. The traditional operation systems do not feature any advanced instrument and resources necessary for administrating documents. As the knowledge and values of a company are kept and created more often in electronic format, these companies admit the necessity of a 383 Knowledge Based Organization 2008 International Conference document management system. The inefficient administration of the information has as result the loss of money, and, thus, they will not be exploited at their maximum potential in the business processes. Even since the ’80, the creation of some systems which to handle the paper documents was initiated. The systems were created in order to offer the basic level of capturing the image documents, storage, indexing and capabilities to restore, following that, in time, the applications include all the electronic documents, collaboration instruments, security and capabilities in auditing. The integrity of the documents is of extreme importance for any organization, so that any of those collaborating within one network needs security as regards the documents he/she works with, and no authorized person will be able to access these documents. Documents are the key element for the success of the companies. As the technologies keep developing, we are expecting the documents to turn into new shapes and offer new possibilities of communication. A document management system contains easy to handle, intuitive and well organized applications, and has an integrated electronic messenger system for fast and safe communication within the company and with other companies or economic agents connected to the Internet and allows: Circulation of documents on hierarchical routes well-determined or defined by the author of the document, with the possibility of approving or rejecting them; The monitoring of the documents’ status, in various stages they are going through, the highlighting of the documents’ resolution manner; Possibility of obtaining statistics and situations regarding the resolved or pending files in a fast way, according to the status, type, responsible persons etc.; The standardized creation, the distribution and circulation of the information and internal documents, as well as of the ones generated in the relation with other organizations, assuring the highest security and confidentiality standards. 384 Knowledge Based Organization 2008 International Conference
2. The characteristics of a Document Management System The component elements of a Document Management System offer: keeping, creation of versions, metadating, workflow, security, indexing, and the capacity to recover. Storage of the electronic documents. The storage of the documents often includes the management of the same documents: where they are stored, for how long the documents pass from a storage folder to another and the eventual destruction of documents. Metadata is typically stored for each document. It includes the date when the document was stored and the identity user who stored it. The DMS (Document Management System) may automatically extract the metadata also from the document or suggest the user to add the metadata. Some systems also use the recognition of the optical character on scanned images or perform the extraction of the text in electronic documents. The resulting extracted text may be used to help users in localizing the documents, by identifying probable keywords or permitting a text search with maximum capacity or may be used alone. The extracted text may be stored as a component of the metadata, stored together with the image or separately, as a source for searching (through) the documents collection. Workflow means the organization and work strategy. The managerial document of the workflow; the software management of the electronic documents, typically includes a workflow for the certification and electronic signing of documents. The workflow document is usually created ad-hoc or by means of an already known conducted process. The solutions of the workflow may be implemented with customers whom users are working with or like a background service, which controls the information and the document flow, without the request of a customer. Security represents protection against losses and the destruction of some documents. The DMS allows the access control for different types of documents stored in the documents' storage area where users and groups may have access. In order to prevent documents from being accessed by unauthorized persons, they should be assigned a password for avoiding their accessing from outside the software interface. Indexing allows the tracing of electronic documents. Indexing 385 Knowledge Based Organization 2008 International Conference can be as simple as the identifiers who search for unique documents, but it often takes a more complex form, supplying the classification between metadata documents and by indexes of words extracted from contents of the documents. Indexing exists only for supporting the recovery. An area of critical importance for a fast recovery is the creation of an indexing topology. Recovery. Although the term recovery of a certain document is simple, the recovery in electronic context may be complex and strong. The simple recovery of certain individual documents may be supported by allowing the user to specify the unique identifier of the document and having the system use the basic index, in order to find the document. A flexible recovery allows the user to specify partial terms of searching, involving the identifier of the document and parts of the expected metadata. This will solve a list of documents which would match the searching terms given by the user. Some systems have the capacity to specify a bolean expression containing multiple keywords or phrases and examples expected to exist in the content of the documents. The recovery for this type can be supported by the indexes previously made up or can perform more searches which require time. Archiving represents the ability to read over. The capture represents images of the on paper documents by using scanning or multifunctional printers. The OCR (software) is used either integrated in the hardware, or as independent software, in order to transform digital images into a legible text.
3. The European Union standards related to the informatics documents management. FDA: The general requirements advance, in the Code of Federal Regulations (CFR) title 21, part 11, which specify what a business needs to maintain acceptable electronic records for complying with the FDA (Food and Drug Administration). The Sarbanes-Oxley legislation The recent legislation imposes new requirements, relations extensible in all public companies and mandates during which the executive board of the respective companies assume a personal responsibility for the procedures of collection of the company’s financial reports and for the integrity of 386 Knowledge Based Organization 2008 International Conference their content. In order to agree with the requirements, companies need flexible software systems which facilitate keeping of the records and the documents management in a safe and efficient manner. ISO: The guidelines for the manufacture, in general (mostly known as ISO 9000) were published by the International Standardization Organization (ISO 9001, the Quality Management standards allowing the administration and control of the documents and data and ISO 14001). The ISA standards (International Standards on Auditing), CIS- Computerized Information Systems) and IAPS (International Auditing Practice Statement). The risks and control of the use of information technology in a company are underlined by the IT Governance, respectively the management and coordination of the information technology in a company.
4. Compatibilization of the Romanian economic entities with the EU A document management application is a stringent need, in the conditions of the exponential increase of the data volume processed by the companies and of the legal regulations regarding the audit of the information on the basis of which decisions are taken. At least this is how the studies made on international level are presenting the situation. Romania is not following this model yet, but there are real signals of the Document Management market incrase. The approval of the Electronic archiving law encourages, in a clear manner, the use of documents in electronic form. Though, at this very moment, the premises for a significant increase of the penetration degree at the level of solutions for the documents management are determined by the benefits deriving from their use. The accession in the EU has undoubtedly influenced the approaching manner of the companies as regards the implementation of document management solutions, a thing which was noticed especially in the private companies, which have started to implement Document Management solutions combined with Web portals, for collaboration and sharing the information with customers, suppliers and partners. The latest Gartner studies lead to the idea of purchasing a documents 387 Knowledge Based Organization 2008 International Conference management solution with multiple functionalities, instead of one with primary functionalities – this is for TCO type reasons. More precisely, the extension of a solution with primary functionalities is more costly than purchasing a complete solution. Nevertheless, the EU integration cannot generate a boom of sales at the level of Document Management solutions, but will align to the ascending trend existent also in our country and will have a better increase than in the EU countries. In the conditions of globalizing the business, the organizational environment must adapt to the market and the competitive situations. The economic increase of the company essentially depends on its ability to update, integrate, customize and extend the applications, by offering rapid, interactive and consistent access to the data. Examples of DMS producers: ¾ SoftNet Development & Consulting on IBM Lotus platform and SoftNet eDoc (www.softnet.ro); ¾ Siveco Romania (www.siveco.ro); ¾ Institutul pentru Tehnicăde Calcul (www.itc.ro); ¾ Oracle (www.oracle.com); ¾ Microsoft (www.microsoft.com) ¾ People Soft ¾ SAP (www.sap.com) etc.
5. Conclusions Advantages of using the DMS: - focus of the company’s efforts on the basic activity, eliminating thus the loss of time from the point of view of the productivity, recovery, distribution, accessing and processing of the information - creation of a standardized environment for the input of content, thus leading to the acceleration of the internal processes within a company; - availability of the information when needed, both for the companies having a territorial distributed structure, and for the off-line work; - higher efficiency in manipulating the documents;
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- access to information on the basis of a set of strict rules, for the assurance of a high degree of information security; - reduction of the space necessary for archiving, by elimination of the possibility to lose information and reducing the - manipulation costs, and the administrative costs, including the paper consumption; - improvement of the control over the developed activity, for an efficient communication; - reduction of the task resolving times; - informs on the notification status the documents are in; - follow up the time necessary for finishing a notification and the ones exceeding this term. While in a company where, by means of classical procedures, the approval of a document takes at least a few days, in the organization with DMS, by implementing a workflow and document management solution, the approval period can be reduced in a large measure, up to the level of hours or minutes. The DMS represents the solution for high productivity and unlimited capacity of the system for a safe management of all types of documents. References [1] Fotache, D.; Hurbean, L., SoluŃii informatice integrate pentru gestiunea afacerilor, ERP, Editura Economică, Bucureti, 2004. [2] Radu, I.; Ursăcescu, M.;Vlădeanu, D.; Cioc, M.; Burlacu, S.-Informaticăi management, O cale spre performanŃă, Editura Universitară, Bucureti, 2005. [3] Roca, I.Gh. (editor), Societatea cunoaterii, Editura Economică, Bucureti, 2006. [4] Laudon, K., Laudon, J., Essentials of Management Information Systems, Organization and Technology in the Networked Enterprise, Fourth Edition, JWS, New York, 2001. [5] Ionescu, T., SAP Enterprise Services Architecture, Strategie i prezentare, 6 6 6. ROCS2006, Bucureti, nov. 2006. [6] http://www.bitpipe.com [7] http://www.statsoft.com [8] http://www.filehold.com
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EXPOSURE OF PUBLIC ENTITIES
Jr. TA Florea–Ianc Maria Mirabela
“Constantin Brâncuşi’’ University, Târgu-Jiu, Gorj, [email protected]
Abstract In the specialized literature, more and more it is imposed the idea that “real is not any more rationed”. And this, not because it is imposed the actional principle of the “limited rationality”, as a consequence of the fact that decisions cannot be adopted on the basis of a complete information, that thus is also very expensive and almost impossible to get it on time. The acceleration of the process of transforming the organizations, beginning with the structural modification of them and continuing with the major changes happened in the conceptual and actional plan of adopting and implementing the decisions, creates and generates a “…formidable detonator of the irrational” whose main exponent is the stress present everywhere in life and in the activity of the organizations.
Keywords: risks, public entities, organizations
Until recently, we tended to believe that the organizations exclusively have a rational, organized, precise, meticulous behavior. In fact, we are more and more convinced that these organizations much adopt an irrational behavior that results from the fact that every action (human, economic etc.) is included in a complex of diversified and very easy to detect influences and determinations. After a long and hard process of restructuring (after 1989), most of organizations that remained functional are threatened by the risk of abandoning the rationality in order to affirm the subjectivism, the personal interests, the hazard and the fortuitous equilibrium. Or, in a socio-economic environment characterized by an accentuated 390 Knowledge Based Organization 2008 International Conference dynamics of change that characterizes the organizations, there are needed more rationality, more initiative and creativity consciously oriented, even though hazard is permanently following us, surprising us with the many facets that it can adopt. In the specialized literature, more and more it is imposed the idea that “real is not any more rationed”. And this, not because it is imposed the actional principle of the “limited rationality”, as a consequence of the fact that decisions cannot be adopted on the basis of a complete information, that thus is also very expensive and almost impossible to get it on time. The acceleration of the process of transforming the organizations, beginning with the structural modification of them and continuing with the major changes happened in the conceptual and actional plan of adopting and implementing the decisions, creates and generates a “…formidable detonator of the irrational” whose main exponent is the stress present everywhere in life and in the activity of the organizations. Under these conditions, it is not hard to notice that between the emotional level and the irrational connotation of the decisions and actions within organizations a more powerful relation is formed. This is the result of the manifestation of some couples of contradictions as: the permanent imperative to frame within the offered budgetary allowances (always insufficient), that opposes and more and more stumbles the organization to achieve the objectives; the need to ensure a flexible structure, with a large opening of the organizations, to whom it opposes the inadequate answer of the employees (from which the majority did not so well learn how to adequately reaction in situations where the coercive element is replaced with the positive element, of conscious training for the achievement of the fixed objectives) at the situations characterized by the job’s uncertainty, more freedom, job duties less specified and outlined; the logical thinking (the reliable and measurable objective) and the intuitive thinking (the subject expressed by perception, intuition, feelings). Starting from the reality that without reducing the pressure generated by the contradictions previously exposed (at which many others are added) and recorded during work, the performance of the organizations is doubtful. More and more, the emotional states 391 Knowledge Based Organization 2008 International Conference generated by the increasing stress and uncertainty determined by the more accentuated involvement in the problems of the organization have as result an unsuspected expansion of the non-logical elements (the intuition). The managers of the organizations have to be conscious of this reality and this trend for initiating, with more intelligence, the logical actions necessary for maintaining the organization they lead at the planned performance standards, by applying the principle that “As any resource, also the emotional element has to be managed”. It is essential to know that the rational and the irrational are in a dialectic relationship, and the organizational management activity has to be oriented not in the direction of eliminating the irrational (an utopian and destined to failure trial from beginning), but in the direction of maintaining an equilibrium as lasting as possible between the functioning of the organization and the orientation of subjectivity’s manifestation in a creative direction. But what plan is more important and has the biggest priority: the rational or the irrational plan? From our point of view, it is not the problem of such a dispute, but that of a positioning depending on time, place and particular solution. In most of the cases, rational prevails in the beginning stages (foreseeing, planning, organization, specification of mission and performance standards that cannot be submitted to the hazardous and emotional factors). In the other situations, the role of the rational is that to ensure the jointly interest, equilibration and training of the individual, of the component subsystems, of the processes and relations endogenous and exogenous to the organization, as well as to prevent the intolerable deviations from the framing in the defined and designed parameters. The reality of the organizations does not cease to surprise, unfortunately, through an alarming expansion of the irrational, especially within the managerial process that, logically, would have to be dominated by the rational level. There are not at all little the situations in which the leaders, once having certain positions, exclusively make decisions, using only the intuitive thinking (the intuition), they are not interested in specifying the modalities and the resources of implementing them, not succeeding in identifying the immediate or in time consequences of the application of the adopted 392 Knowledge Based Organization 2008 International Conference decisions. Also, certain leaders of organizations erroneously appreciate that if they succeeded in having different positions, they have nothing to learn if any ascendant step in the hierarchy leads to the rapprochement to the incompetence limit. So we should expect that, in the context of the constraints generated by the socio-economic environment specific to the organizations, their managers rationally behavior and reaction to the most important stimuli come from the internal and external environment, without waiting that, every time they make a decision, be rational, because “those, who try to be rational every time they decide, are not rational; if it would be so, they would live their life by making decisions for the most insignificant issues”. So, rational is sequentially manifested, besides irrational, in managing the organizations. Uncertainty in organizations sinuously developed, from the certainty state characteristic to an excessively centralized system of allocating and using the resources, to the uncertainty state that characterizes the current economic-social environment, internal and international, evolution occurred on the basis of lagging behind of the modernization of these organizations compared to the much more fast development of the other organizations from the economic-social environment. The activity of the organizations unfolds under the influence of some state and development variables. The state variables result from the manifestation of the relations between its constitutive parts and whole, from the maintenance of the patrimony and of its functional valences. The development variables represent the purpose of the manifestation of the state variables, their manifestation being reflected and concretized in the level of reaching the set up performance objectives. The capacity of adaptation and the performances of the organization depend on the level in which the managers of the organization verify these variables. The legal and efficient management of the state and development variables supposes the use of a performing informational circuit that grounds as rationally as possible the made decisions. If such an informational circuit exists and produces on time the data necessary for making the decision, we speak 393 Knowledge Based Organization 2008 International Conference about the presence of the uncertainty. At the opposite pole, there are the situations in which the decision-maker has not on time the qualitative information necessary to the exactly substantiation of the decision and he cannot anticipate the impact of the application of the own decisions. This is the area of uncertainty. If “…the essence of the uncertainty is reduced at a managed feeling” (of the person or of the group), its seize directly and indirectly influences the performances of the organizations. Thus, directly, uncertainty determines the precisely lack of knowledge of the evolution, in a foreseen time, of the organization, of the way in which there will be ensured the financial funds necessary to functioning, and in what proportion, of the solutions of ensuring the human resources and the materials necessary to functioning. Indirectly, uncertainty alters the work efficiency (generating an unbearable anxiety) or it is constituted as a strong stimulating factor in increasing the knowledge and accentuating the creativity in conditions of certainty and safety of the structures, jobs and generally of a predictable economic-social environment. Organizations cannot avoid uncertainty, but they can keep it within reasonable limits. What are these limits? Very hard to specify, because they were nowhere defined, being made analysis of a phenomenon, on different levels (level of equipment with techniques, efficiency in using the funds, quality of human resource, quality of life etc.). Even though immediate measures were not taken for repairing the found dysfunction, due, mainly, to the budgetary constraints, we appreciate that it is a positive fact the preoccupation for identifying them, for emphasizing them in an “uncosmetized” shape and setting up some operative and strategic targets for managing the uncertainty sources and the risks, even though success in not always present. The components of the exposure are the entity exposed to risk, the risk factors and the financial impact of the loss. The entity exposed to risk represents the subject to which the initial state is harmed (the value and/or the possible gains produced by this are partly or entirely compromised), being made of people (individual, group, collectivity, society etc), property (buildings, grounds, installations, equipments, products, movable goods, manufacturing processes etc.) or
394 Knowledge Based Organization 2008 International Conference environment (soil, subsoil, vegetation, climate, water, air, temperature etc.). The risk factors, depending on their origin, can be natural (fires, floods, earthquakes, tornadoes etc.), human (man and his facts harmful for the society) and economic (recession, inflation, progress, globalization etc.). Managers have to know that to one and the same risk factor there correspond many types of losses (consequences), and also different affected entities. This is the main reason for which the risk factors have to be identified and analyzed in the specific context of the evaluated risk situation, corroborated with the fact that a risk factor from a category can determine the manifestation of other/others from other categories. The loss financial impact is determined by the proportion of the consequences suffered by the entity, when the risk factors are manifested. Material losses are easier to evaluate, while human losses (injuries, getting ill, human losses) are much more difficult to calculate. It is obvious that the financial impact of the losses occurred can have different seizes over the entity submitted to the risk. So, a loss of a certain value can be catastrophic for a small company, as well as it can be insignificant for an entity with a big economic and financial potential. We showed above that risk is used as synonymous for danger, but also other acceptions are met, as for example, the possibility of loss, the probability that loss occurs, hazard, possible losses etc. We appreciate that all these expressions can characterize the risk in a large part, for certain specific circumstances, but not at all replace the complex notion of risk in the acception presented in the specialized literature and recognized by specialists. Concerning the possibility of measuring the risk, the specialized literature establishes two trends: risk cannot be measured, thus it exists or it does not exist; risk can be measured and it has values between 0 and 1. This trend gains more and more ground compared to the first and it is frequently used in the risk analysis. Hazard is frequently used as signifying risk because it represents a circumstance or a set of circumstances, favorable or unfavorable, whose cause remains, generally, unknown. Hazard can be classified thus: moral hazard, behavior hazard and physical hazard. Moral hazard is manifested when a person can try to cause, deliberately, a 395 Knowledge Based Organization 2008 International Conference loss or exaggerate the proportion of a loss occurred. This type of hazard has at the origins defaults or labilities of the human character. Moral hazard is, in some cases, a speculative risk. It was statistically found that an action through which a person tries to deliberately cause a loss, can determine benefits for that person or for an other entity. Behavior or conduct hazard is manifested when a normal person is less attentive to the behavior he/she has to adopt in different circumstances. For example, the storage by manager of material goods in an inadequate space can lead to the increase of losses in case of degradation, theft or fire. Physical hazard is associated to the persons, property or processes that increase the probability that danger occurs or losses increase. The three categories of hazard can exist individual, as well as together. If the first two categories of hazard are directly associated to the human factor, the third category extends hazard also over the unliving (material) entities. Risk designates the possible losses at which an entity is submitted. Thus, for example, it is used the expression “property risk” for the losses that affect property, the expression “business risk” for the losses occurred in businesses, “health risk” for the prejudices brought to the people’s health, “audit risk” for the operations of the leading and internal control systems that cannot be identified and evaluated through specific means etc. Also the acceptance of the risk, and the setting up of a tolerable level of the risk for an individual or for a company, differ from a community to another and they are influenced by a series of psychological, educational, socio-demographic factors etc. Health and Safety Commission from Great Britain defines the intolerable risk thus: “Tolerance means acceptance. It means the availability of living a risk for obtaining certain benefits and being confident that the risk is adequately controlled. To tolerate a risk does not mean to see it as being negligible or as a thing that cannot be ignored, but we can see it as something that has to be considered and reduced if and when we can” As a consequence, the acceptance and the toleration of the risk are in a bi-univocal relation with the obtaining of a benefit or with the keeping of a commodity state obtained before the consequences generated by the risk factor. Thus it results the reality that the 396 Knowledge Based Organization 2008 International Conference acceptance of a certain level of risk is the result of the comparison of the risk with the benefits. When the consequences of the manifestation of the risk are economic, the setting up of the level of acceptability finds its solution in the theory of the economic best and of the optimization of the decisions. The problem of setting up the level of acceptability becomes extremely complex, getting special ethic and moral dimensions when the consequences are social. In fact, the acceptable risk is not anything else that an agreement of the socio-politico-economic decision factors, the level of risk being set up on the basis of certain criteria in which their prevalence has to be set up, namely the human, social, political, economic, diplomatic, imagological criteria etc.
References [1] Greceanu-Cocoş V., The Audit Investigation for Public Institutions,, Adevărul Publishing House, Bucharest, 2001. [2] Comănescu M., European Management, The Economic Publishing House, Bucharest, page 72, 1999. [3] Băcanu B., Strategic Managemen, Teora Publishing House, Bucharest, page 111, 122-123, 1999. [4] Munteanu A., Accounting Information System Audit, Polirom Publishing House, Iaşi, 2001. [5] Stoian A., Ţurlea E., The Financial and Accounting Audit, Economica Publishing House, Bucharest, 2001. [6] Boulescu M., Marcel G., Mareş V., Fiscal Control and Financial-Fiscal Audit, CECCAR Publishing House, Bucharest, 2003. [7] Marcel Ghiţă, Ion Pereş, Marian Popescu, Ovidiu Bunget, Ion Croitoru, Internal Public Audit – concepts and methodology, Mirton Publishing House, Timişoara, 2005. [8] Accounting examination review and the Accountability. Examination and Business Audit, collection 1994 – 2006. [9] Cibela Neagu, The firm’s management, Tritonic publishing house, Bucharest, 2004. [10] Henry Fayol, French (1841-1925), Administration industrielle, Dunod, Paris, 1966. [11] Anghelescu C., Ciucur D., Suciu M.C., Grosu T., Socol C., Pop V., Strategic Options of Romanian Economic Development, ASE Printing House, Bucureşti, 2004. 397 Knowledge Based Organization 2008 International Conference
ROMANIAN COMMERCIAL BANKS AND CREDIT RISK IN FINANCING SME
Covaci Brînduşa, PhD
’’Spiru Haret’’ University, Bucharest, bcovaci.fb @spiruharet.ro
Abstract Romania’s integration in the European Union brought about some major changes in our banking system. One of the direct consequences is the fierce competition between banks for supremacy on the market. According to this, the Romanian banks saw in the SMEs sector a true potential for reaching their goal and they proceeded to conquer it by conceiving unique products, specially designed to reach the financial needs of this segment. Moreover, banks often come up with new attractive offers and cost reductions for the SMEs (Small and Mediu Sized Enterprises) sector. In this context, some answers need to be done: the effective risk banks accept to take by providing the offers, specific risks in financing this sector, the problem of the balance between risk and profit return (or market share increase).
Keywords: credit risk, risk management, financing SME, bank policies
The Romanian banking sector has been lately the victim of some profound structural changes, generated by the perspective of integration in the European Union. This resulted in a monetary instability manifested through an increased volatility of the exchanges rates and of the capital flows as well as in a tough concurrence between financial institutions. This fierce competition between banks determined them to launch themselves in a real course of financing, by accepting more and more risky transactions. The target segment of the credit institutions seems to be recently the SMEs (Small and Medium Enterprises) for some well-established 398 Knowledge Based Organization 2008 International Conference reasons. Thus, SMEs represent one of the major sectors of all economies both from a market share point of view and from the fact that these firms contribute definitively to the creation of GDP (Gross Domestic Product) and engage a great part of the existent working force. Moreover, as the majority of the powerful corporations have already decided which financial institution they prefer to work with, the SMEs sector looks in this situation, as the cornerstone for the future development of the credit market, a field unexplored yet at its full potential. Therefore, it is no doubt that, in order to attract an important share of the credit market, banks initiated an aggressive campaign of conceiving some products specially designed to meet the particular financing needs of the SMEs’ sector. Specific risks associated to SMEs financing SMEs represent an important sector for all economies. Tough, in spite of the dynamics and of the importance of this segment for the economic development, SMEs continue to be faced with different problems linked to their access to credits. According to a study of the European Commission1, concerning the SME sector in E.U., between 18% and 35% of the firms which asked for a credit were refused. Meanwhile, the same study shows that in Romania, the main source of financing new projects is represented by firms’ own funds. One of the reasons of SMEs difficult access to borrowed funds is the fact that these firms are perceived as being more risky than big companies. They present a high sensitivity to economic shocks while disposing of an inferior capacity to absorb variations. From this perspective, allotting medium and long time credits to these firms becomes problematic. Moreover, even short time credits are hard to be granted because of the monthly payment obligations risking to overpass the accepted debt capacity. In addition, in many of these cases, the monitoring costs reach unacceptable high levels as compared to the value of the granted credit.
SMEs in Europe, 2003, Report for România - Observatory of the SMEs in Europe, The European Commision, July 2003 On the other side, many SMEs are faced with the lack of some adequate collateral necessary to sustain a credit requirement while, in the meantime, banks feel reluctant in accepting personal guarantees. 399 Knowledge Based Organization 2008 International Conference
And finally, the Romanian legislation concerning debt recovery in the case of bankruptcy of SMEs is much more bureaucratic than in that of some big, important firms, where more transparency is required. Despite all risks related to SMEs financing, banks cannot ignore anymore this sector if they want to gain a comfortable share of the credit market. In this respect, financial institutions proceeded to develop new credit tools specially conceived to meet the financial needs of this segment. However, even these new products present their own associated risks - generated by the peculiarities they present – which finally add to the final risk banks accept to take when financing SMEs. One way to cut the total risk is to analyze the specific risks born by these latest financing policies and then, to try to reduce them by appealing to some specific risk management tools, in order to establish a profitable balance between the risks accepted and the income brought by this extensive financing activity.
New credit products for SMEs and their associated risks A great part of banks’ profits comes from their financing activity. Actually, the credit segment represents a central concern for any financial institution and many of them are trying to develop and implement efficient policies in order to enhance the credit activity and thus, to increase profits. If we are to also take into account the potential presented by the SME sector, we can understand the reasons which determined banks to launch themselves into a fierce campaign of conceiving new, quite permissive credit policies for SMEs. Moreover, the great concurrence between banks in allocating the attracted funds, determined them to overlook some of the risks incurred by the new financing tools. A short introspective into the new credit products launched on the market by different Romanian banks proves some common features. One important aspect is for example, the non-bureaucratic formula of documentation analysis and credit allotment. The answer is given in maximum 24 hours in response to SMEs pressing needs for short time, accessible funds, in order to cover their temporary account overdrafts. The analysis is based on some basic financial and non-financial indicators. In the first category we can include: a minimum existence 400 Knowledge Based Organization 2008 International Conference period of the company on the market (which might vary from six months to up to one or two years) or the requirement of not figuring in CIP (The Office of Payment Incidents) with payment delays for a certain period of time. As concerns the financial indicators took into account in establishing the eligibility of a SME for a credit granting, these are: a positive turnover trend, a positive operating profit and financial stability – the company must be classified in the A or B risk class according to the bank’s internal policies concerning the evaluation of the financial performance of firms. The schematic analysis helps in gaining accessibility and improves the volume of the granted credit. The new slogan seems to be: “quantity before quality”. And in many instances this is true, in the sense that banks rely on allocating an important volume of credit with the thought that these profits – resulted from volume - might compensate for some damages occurred in the case of any default payment. Anyway, as many might observe, the probability of risk occurrence is quite small. Even tough, such permissive conditions bear many risks and banks should balance the need for diversifying their credit portfolio - and thus gaining better market shares or profits – with the risks they assume. Among the risks inherent to the allocation of credits we would only mention: the risk of adopting a wrong financing decision. The pressure for a rapid analysis of the credit documentation and the scarcity of the indicators taken into account during this study, do not allow for a better knowledge of the firm and of its risk profile. Consequently, it is quite probable that the bank’s exposure to risk might increase by accepting such a financial request and this might lead in turn to a future increase in the banks costs of monitoring and provisioning. The advantages granted by the new credit products are countless. Actually, the variety of credit tools available on the market is meant to satisfy any of the customers’ needs in terms of: accessibility, rapidity, payment flows, etc. In this respect we would mention another product, the “0 Interest Rate Credit” specially conceived to cover for some of the firm’s short term, temporary needs. For example, a company has to pay for a cheque in three days time but it will receive the money in two weeks. Or, an industrial equipment is expected to arrive at the customs but the importer is confronted with a temporary illiquidity, 401 Knowledge Based Organization 2008 International Conference lets say for four days. In this case, both debtors can access a rapid credit like the “0 Interest Rate Credit” which effectively answers their temporary needs and which is really cost efficient. The new product seems to be of real interest because SMEs can get the financing in real time and more importantly, they will not be obliged to pay any interest rate, just a monthly commission. For firms confronted with temporary illiquidity this is cost efficient as they can better manage their cash flows while avoiding the payment of some high interest rates. Moreover, if they succeed to cover their debt on a monthly basis, the commission will drop significantly. From the banks’ standpoint however, this type of credit bears many risks. Funds do not necessarily have a certain destination, fact that prevents banks from controlling their use. If the credit is allocated to an inefficient activity or if they are used for purposes not serving the real interest of the firm, the risk of that company’s default payment is much higher. This adds to the risks associated to granting a rapid credit and generates an increase of the overall risk taken by the financial institution. Other methods of financing offered by the Romanian banks are factoring and the procedure of discounting financial instruments. As for discounting, risks are that the financial instruments (for example cheques, promissory notes) are post-dated or that they present some restrictive clauses like the right to protest or to initiate regression actions. If these financial instruments are offered to the bank in blank to serve as a guarantee and the bank does not pay enough attention to such clauses, the risk is that the debtor will default sooner or later in its payment obligations.
Risk management policies implemented by the Romanian banks: present and perspectives Credit risk is inherent to any bank. Actually, credit allocation is one of the main activities of banks and the one which brings much of its turnover. But the greater the incomes brought by the credit activity, the greater are the risks assumed by the banks. In this respect, one of the greatest challenges of all financial institutions is to find an efficient balance between the risks incurred by their financing activity and achieving an increase in their profits. 402 Knowledge Based Organization 2008 International Conference
From this perspective, the credit policy of the Romanian banks should include common objectives like: the efforts of selecting secure credits with a maximum probability of reimbursement, insurance of the efficient use of the attracted funds or a development of credits to meet the specific needs of the clients who operate on those markets where banks have a well-established presence. Moreover, in order to prevent risks, credit institutions should establish themselves a strategy of credit granting, they should pursue this strategy and adapt it periodically to the changes interfered into the market. Risk might appear in any stage of the process of credit allocation from the incipient phases of documentation analysis up to the final stages where the debtor enters into liquidation and the guarantees must be sold to pay out the debt. Consequently monitoring is required throughout the entire process of financing. Credit risk can be determined by errors occurred at the superior levels, the so-called strategic errors, or they might be as well the result of some operating errors. Strategic defaults concern the bad conception of the bank’s policies and of its short and long term strategies concentrated in the form of some rigid internal norms related to the process of credit selection, analysis, granting and monitoring of the process. This category of risks is essential in the way that, if the policies and the strategy of the bank are wrongly conceived and pursued, the entire process of financing has to suffer and the banks will head towards disaster. But the fail of a bank has a domino effect upon the entire banking system of the country by reducing the population’s confidence in this system. For this reason, the policies and strategies of any financial institution, their internal norms as well as any changes operated on them must receive the approval of the central bank. However, there are also some strategic decisions which do not necessarily need to be accepted by the NBR (National Bank of Romania) but which might cause serious problems. In this category we can include the market strategy of the bank or establishing the limits of their credit portfolio diversification. Promoting very risky credit products or credits denominated in a currency for which the bank does not have enough resources might, for example, prove to be fatal for the bank.
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In order to prevent the risk of financing, a good credit strategy is not enough. It must be also sustained by operational efforts. Operational errors that might appear during the process of financing can be divided into the following categories: Errors linked to the credit documentation: editing errors, overlooking some important clauses, etc. which need sustained attention and trained personnel; Errors occurred during the processing (when introducing information about the credit into the system) and the administration of credits; Errors in monitoring the credit like: defaults in pursuing regular analysis of the financial situation of debtors, the flow of funds through the debtor’s accounts opened at the bank and the provenience of these funds, debtors’ relationships with their suppliers, customers and partners, the evolution of the markets where these debtors operate, if they pay in time their debts, etc. Any fault in observing real time changes that might interfere at this level might lead to future debtor defaults. Errors appeared during the monitoring process of the credit portfolios concerning their evolution as a whole and the evolution of each credit product respectively, or when determining the periodic correlation of the volume of credit granted for different destinations with the limits initially established by the specialized commissions. This type of errors has important consequences as the central bank requires regular reports with the maximum exposure of banks for groups of debtors and for debtors situated in special relationships with the financial institutions. Any excess of this kind of exposures will trigger about penalties. In this case, banks must proceed to a restructuring of the credit portfolio in order to meet the bank’s strategy and the regulations applying to this sector. Errors triggered by the deficient monitoring of the guarantees and the calculus of risk provisions. Defaults that might appear in this case link to establishing the right market value of the guarantee or evaluating the market trend for the object brought as a guarantee. Besides these risks, which are inherent to any credit activity, banks are also confronted with some specific risks, generated by the new credit products they offer to different categories of firms: like the 404 Knowledge Based Organization 2008 International Conference credit tools specially conceived for the SME sector. The risks associated with these products are determined by the financing facilities that banks offer to this particular sector, in their efforts to attract an important share of a yet unexplored market. The new credit tools present the great advantage of being very flexible. Thus, the rapidity of documentation analysis (24 hours in most of the cases), the full financing of the project - without any initial own contribution from the part of the debtor - , the existence of credits which do not require mentioning a certain initial destination or the possibility of presenting as credit guarantees some promissory notes in blank, are just as many opportunities of risk enhancing. In this context, a question remains to be answered: which are the management techniques used by the banks in protecting themselves against such risks? The promptitude in granting a credit might bring banks many risks related to a deficient knowledge of their clients, of their capacity and their willingness to pay back their debts. The reduced number of the analyzed financial indicators represents another reason of the default risk of the counterparty. In this situation banks should pay an increased attention to the preliminary discussions with the client. The credit analyst must question the history of the client’s relationship with the bank – actually old clients whose financial and payment record is already known should be preferred to a new client.
In conclusion, a good policy in this sense could be represented by the cross-selling products or by the marketing policies trying to attract clients which act on specific markets on which the bank has an important presence or which develop affair relationships with the old clients of the bank. This way, the analyst can keep a track on the new client by disposing of supplementary information about their financial capacity and their character. Moreover, the analysts should maintain a climate of mutual trust and understanding for their clients; they should periodically monitor the debtors’ activity and announce their superiors of any changes that might appear. Thus, any worsening of the economic and social conditions of the debtors will be handled in real time and the probability of default is substantially reduced.
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References [1] Covaci B., Small and medium sized enterprise (SMEs), entrepreneurship and e-banking, Landforces Academy "Nicolae Bălcescu" Conference – The knowledge based organization, Sibiu, 25 November 2007. [2] Nistor I., Sterpu B., The role of the entrepreneurship and e-banking in developing small and medium sized enterprises activities, The Second Central European Conference in Regional Science, Slovacia, 10-13 October 2007. [3] SMEs in Europe, 2003, Report for România - Observatory of the SMEs in Europe, The European Commision, July 2003.
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SMALL OR MEDIUM SIZED NOWADAYS ENTERPRISES IN THE CONTEMPORARY ECONOMY
Istocescu Amedeo, PhD
Academy of Economic Studies of Bucharest [email protected]
Abstract In our international economic world, usually, „business” means: • An enterprise, an organization, a company, private one usually, involved in products, goods or services achievement on a local, national or regional level; • An economic or business sector, that includes all the enterprises with the same activity in terms of goods or services; • All the activities realized in a specific context or in a geographical or historical space at one moment.
Keywords: small or medium sized enterprises, businesses, types of businesses, characteristics, perspectives
1. A lot of kinds of business in the contemporary economy The peculiarities of the structure of nowadays enterprises, their strategies and the kind of the property of those enterprises demonstrate that we can do nowadays the following four types of private „businesses” [1]: • Proprietorship, with a single one owner, usually also the manager of her/his private small or medium sized enterprise; • Partnership, when two or more persons are involved in a single one private small or medium sized organization, with different or equal percentages in terms of resources; 407 Knowledge Based Organization 2008 International Conference
• Corporation, which it is a private but not at all necessary small or medium sized enterprise, but usually a large one, with a specific management team, that work „for” the owners of the corporation; • Cooperative, with a limited responsibility, only for the „amount” subscribed by the owners.
2. What means a small or medium sized enterprise We use the „term” of „small or medium sized enterprise”, private or not, in order to „define” any organization, personal or family run, create to help to make some/a lot of money or more than that for the owner or her/his family, in different economy fields, in different places, using different structures or strategies, reverently face to the law. Nowadays in the developed countries 95 to 99 percent of the total organizations are small or medium sized, usually private businesses [3]. The European Commission recommended recently the modification of the specific legislation of the small or medium sized enterprises. From the 1st of January 2005, we can consider as a limit of this kind of firms a maximum number of 250 employers; a maximum 50 million euros total cut income and/or a maximum value of actives that not exceed 43 million euros.
3. A new „European” classification of the enterprises No matter of the size of the organization, in the European Union exist nowadays the following three types of enterprises[4]: • „Autonomous” or independent enterprise; • „Partner” enterprise; • „Linked” enterprise.
4. Two types of characteristics of the Romanian sector of small or medium sized organizations If we try to understand how is „working” nowadays Romanian small or medium sized enterprises, we identify two types of features: • General or common features for the hole „world” of small or medium sized enterprises, in all countries;
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• Specific or native features, valid only for the Romanian small or medium sized enterprises.
5. Four stages of the Romanian nowadays small or medium sized companies sector From 1990 to the present time the Romanian small or medium sized enterprises traversed four stages: • Between 1990 and 1995 there was a period of difficult reorganization of the main advantages of this particular sector of our national economy [5]; • Between 1996 and 2000, it was a period of a high degree of difficulty characterized by uncertainty[5]; • Between 2001 and 2006, there was a fruitful period for this economic sector and all the main problems were at least partly solved; • After 1 January 2007, since when Romania accessed at the European Union, there is a new phase in this economic sector evolution marked by relevant and consistent changes going on.
6. Perspectives of the Romanian small or medium sized enterprises sector We consider that in the present stage traversed by the sector of the Romanian small or medium sized enterprises and after the accession to the European Union we can outline the following main perspectives [2] of this sector: • The infinite diversity of the business opportunities; • The transformation of the business environment from a permissive one to a favorable one; • The large diversity of the markets (from a local or national one to a regional or even international market); • The achievement of new and special market and economic performances; • The development of the business network with partners from our region, from the European Union and from all over the world;
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• The participation to the Unique European Market; • The increasing level of the international know-how transfer in the management sector; • The creation of a real competition between the small or medium sized enterprise and the sector of large firms.
7. Summary This paper offers you a generic view upon one interpretation regarding the appearance, the evolution and the future perspectives of the Romanian small and medium sized enterprises sector. In this format the content of the material represents an overview of the field each sub point presenting a possibility of being developed in the future.
Acknowledgements The presented material was created after a short analysis of the specialized articles in the academic reviews and specialized press and of some personal researches published as chapters in textbooks in the last years.
References [1] Burduş, Eugen, Fundamentele managementului organizaţiei, Bucureşti, Editura Economică, 2007. [2] Istocescu, Amedeo, Management pentru întreprinderi mici sau mijlocii, Bucureşti, Editura ASE, 2008. [3] Istocescu, Amedeo, Managementul organizaţiei prin studii de caz, Bucureşti, Editura ASE, 2007. [4] Istocescu, Amedeo, Inteprenoriat şi intraprenoriat in România, Bucureşti, Editura ASE, 2006. [5] Nicolescu, Ovidiu, Managementul întreprinderilor mici şi mijlocii, Bucureşti, Editura Economică, 2001.
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THE COMPETITION POLITICS IN THE EUROPEAN UNION AND ROMANIA
Moga Ilie, PhD
“Lucian Blaga” University of Sibiu
Abstract The competition politics can be better characterized through its standards rather than rules, and the economic analysis is the approach instrument for the legal norms in this domain. Going back through history, it is good to remember that the experience in this domain of the United States of America represented for Europe a milestone and a new beginning referring to: the monopolistic test to define the relevant market, concentration analysis, the treatment of vertical restrictions, clemency politics, etc. Therefore, the European Union is now consolidating its own standards regarding the unilateral behavior, the creation of effects is not a necessary condition to notice a vantage ground abuse. The cooperation between the national competition authorities, and to their turn, their cooperation with the European Commission represents an important instrument for those involved in such phenomena regarding the development of the national jurisdiction. Celebrating ten years (in February, 1st, 2007) of legislation implementation in the competition domain in Romania represented an important reflection point over the results but also the opportunity of a better involvement in the following challenges.
Keyvords: standards, legal norms, monopolistic test, national jurisdiction
There are more theories and especially more application standards regarding the law application in the competition domain. Thus, on the occasion of the first conference of ICN(1) from Naples in 2002, the then-manager(2) of the Italian competition authority, referring to the 411 Knowledge Based Organization 2008 International Conference endless debate regarding the test that should be applied for the concentrations control, the prevalent feature or the substantial competition decrease said that: “The Atlantic Ocean is not a one-way street”. What he meant was the fact that even the less experienced competition authorities, have something to say to the world, a message to send.(3) Because this domain has its history, we have to mention the fact that the Europeans have barrowed a lot from the American experience, but not the original competition philosophy, which has its origin in the German ordoliberal tradition, since 1920. This ordoliberal German tradition was mainly based on form, and made distinction between “preventing competition” (such as: bankruptcy prices, fidelity discounts and the boycott – which had to be suppressed), on one side, and the “competition through performance” (which included the behavior of a company whose goods became more attractive for consumers – which had to be favored), on the other side. Nevertheless, for many years on, the application of the competition rules in the E.U. meant the implementation of the articles 81 and 82 (the former articles 85 and 86) from the Treaty of Rome of the E.C. (1957), in the case of notification agreements and the immunity regulations on comprehension categories. The endorsement in 1989 of the regulations regarding the economic concentrations, occasion on which a great accent was put on the phenomenon analysis, made the European Commission to move from form to effects. Only in 1997 was the conveyance regarding the relevant market issued and two years later, a new immunity on comprehension categories for vertical restrictions was issued. These were the first official documents in which the new approach of the European Commission was articulated. Thus, the role of the economic analysis becomes more and more important for the interpretation of the substantial competition rules. Also regarding the application of the article 81 from the Treaty of Rome (of EEC), a great progress in this domain was represented by the endorsement of the Regulation no. 1/2003 regarding the elimination of the economic concentrations notification system. Under such conditions, the line 3, from the article 81 has, now a direct effect. Direct decisions are not possible anymore, the restriction substance 412 Knowledge Based Organization 2008 International Conference being what matters. Thus, after 40 years of experience, the substance is what it matters in the application process of the competition rules in the E.U.(4) Regarding the distinction between rules and standards, in the competition domain, the law establishes certain standards but no rules. The competition norms can be rather of the type “you must not drive dangerous” than “you must not exceed 50 km/hour” using the interpretation instrument economic analysis(5). Through the economic analysis we are given the possibility to notice what “driving dangerously” really means. Therefore, the economic analysis is the main instrument which allows us to exclude certain components of the companies (cartel agreements) which are never profitable and which should never be forbidden. From a certain point of view, the standard can become a rule in the case of the cartels, but it remains an optional rule, because the law doesn’t mention that these should be forbidden. Regarding this, the influence of the USA was of a great importance. Thus, the definition of the relevant market, the treatment of the vertical comprehensions, the manner of analyzing the economic concentrations have an American origin. Until now, the normal convergence has been clearly led by the Americans. If we refer to the unilateral behavior of the companies, we can consider that Europe has become quite influent regarding the implementation practices all over the world, in the competition domain. The application of the competition rules can be a regulation of the market failure as well as a political declaration. Under such a context a question arises: which is the market failure improved by the competition politics? We consider that the answer to this question is the big difference, but a second question arises regarding the aim of the competition politics. Thus, the aim of the competition politics is to maintain a competitive market, under the best form, a market where the goods suppliers as well as their consumers are so little that they can not individually influence the market balance conditions (the perfect competition – which unfortunately is not known in reality). From this point of view, a market failure can appear quite often and it can emerge at any time if a market is structurally different from a competitive one. According to such a broad approach, the competition politics should be aloud to intervene more in supporting the 413 Knowledge Based Organization 2008 International Conference competition emergence and maintenance. The problem is that the legal instruments are less intrusive than the affect theory suggests. Referring to the implementation of the competition legislation in Romania, the Competition council, which, in 2007, celebrated ten years of activity and experience, having in the same time the role of a member with absolute rights of the European Competition Network, has successfully managed to reach to the maturity standards imposed by the European standards in this domain, being noticed through its great performances. Thus, it’s worth to mention: Romania’s title of a functional market economy received in 2004 and the end of the adherence negotiations to the E.U. of the chapter “Competition”; the observer title at the Competition Committee from OECD; the favorable evaluation of the competition domain in the Country Reports from 2005 and 2006. Taking into consideration the direction of the Romanian economy, it was necessary to create a complex legislative and institutional framework, which should assure the development in normal conditions of the competition relationships between companies. According to this approach, the role the competition politics plays on a functional market economy should be understood. The competition in itself (seen from “theories”) represents an important incentive for companies, which encourages them to activate at high potential in order to produce goods and create high quality services at the lowest price. The competition also influences the entrepreneurial spirit and the incomings of new companies on the market, rewarding the efficient companies and executing the inefficient ones. Thus, under ideal market circumstances, the companies react quickly and flexible regarding the new comers and the changes that occur on demand. The accession on the market of new competitors obliges the existing companies to develop new strategies. The capacity of existing companies to conform their position to the new comers on the market and the speed with which these strategic changes are realized are the efficiency and challenge indicators of a company. It should be normal that the national economy function without the public authorities’ implication, based just on the objective laws of the demand-offer rapport, in a system which rewards the efficient 414 Knowledge Based Organization 2008 International Conference companies which adapt themselves to the market demands. Nevertheless this is very difficult to be realized, Romania has immediately established the rules that should assure the correctness and the balance of the market rapports and create a solid institution in this domain, able to strictly apply these norms. This institution is called the Competition Council (6), and it represents one of the major points of the market economy in our country. Nowadays, under such circumstances, the Romanian business market has a normal competition climate. The Romanian legislation in this domain is totally adapted to the communitary acquis, and the Competition Council – as a self-sufficient authority (a watchdog for the Romanian economy – according to some specialists) has the role to objectively supervise the unitary application of the relevant rules. The aim of the law of competition is “to protect, maintain and stimulate the competition and a normal competition medium in order to promote consumers ‘interests”(7), it forbids the anti competition agreements (expressed or tacit) between different economic agents, the vantage ground abuse and the economic concentrations which could determine “the detraction or the significant corruption of competition on the Romanian market or on a part of it”.(8) We should add that the Romanian competition authority has played and will continue to play an important role in the state aid. According to the law of the state aid(9), until the date of Romania’s adherence to the European Union (January, 1st, 2007) the role the Commission had in the domain of state aid at communitary level has been offered to our country to the Competition Council. Before the data of January, the 1st, 2007, any state aid could be given to Romania only after the authorization by the competition authority. After Romania became member of the E.U., this competence was normally sent at the level of the European Commission, the Competition Council having important responsibilities regarding the state aid.(10) We should mention that the way in which the competition authority understands to interpret and apply the specific legislative framework is very important. Therefore, the implementation of the competition rules does not represent just a simple judicial exercise but it also needs the ability of economic analysis. Besides the adaptation of the Romanian legislation to the European one, the adherence of the 415 Knowledge Based Organization 2008 International Conference
Competition Council to the great European competition family has implied the institution to the consolidation of the administrative capacity, allowing it thus, to implement the relevant rules at the corresponding standards. The competition politics is a part of the economic life continuously developing, the Competition Council having the duty to be the first one that announces the conformation to the new challenges in this domain. Thus, Romania’s adherence to the EU has influenced the evolution of the national competition authority. Therefore, regarding the anti competition (antitrust) domain, starting with January, the 1st, 2007, the Competition Council applies directly the stipulations of the communitary acquis, namely the articles 81 and 82 from the EC treaty (the articles 5 and 6 from the Romanian law of competition) and the secondary legislation issued in applying these articles. Thus, for those anti competitional practices and agreements which affect the trade between the member states, the Competition Council will apply directly the communitary acquis in cooperation with the European Commission and the national competition authorities. The cooperation between the Competition Council, the European Commission and the rest on the European competition authorities is realized through the European Competition Network.
References [1] ICN – International Competition Network: this network is an informal one, based on accurate projects and based on unity, which unites the competition authorities (antitrust authorities) from the developed countries and the countries in development. ICN helps to share the experiences and change ideas, opinions, points of view on competition problems deriving from the rapid globalization of the world economy, as well as encouraging the share of experiences and the best practices in this domain, the promotion of the defensive role of the competition played by the antitrust authorities and facilitate the international cooperation. The creation of ICN was officially announced in October, 25th, 2001 in New York. It annually organizes a conference where all the competition responsible take part in. [2] Giuseppe Tesauro [3] n.n. USA –Sherman Law – 1890 (Antitrust Law); The Concentration Regulation of the EU-1989, The Italian Law of Competition – 1990; The Romanian Law of Competition -1996 416 Knowledge Based Organization 2008 International Conference
[4] Albero Heimler ”Recent evolutions in applying the competition rules”, the magazine “Profile: competition); president of the work group no. 2 “Competition and regulation” from OECD. [5] Idem 4 [6] According to the Law of Competition no. 21/1996, republished with the further modifications and additions. [7] Art. 1 from the Law. [8] Art. 5 from the Law. [9] Law no. 143/1999, implemented on January, 1st , 2000. [10] OUG no 117/2006 regarding the state aid, approved by Law no. 137/2007.
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REFLECTIONS REGARDING THE BANKING MANAGEMENT UNDER THE PERSPECTIVE OF BASEL II AGREEMENT
Serediuc Titus, PhD
The Romanian-German University of Sibiu
Abstract The continuous improvement of the banking management is a permanent concern of the business environment specific to the respective financial segment, which knows the gradual changes reflected in the most important documents, which, theoretically, have only recommendation character, but practically, the stipulations in their content are not broken by any central bank in the E.U. space. This is the case of the Basel II Agreement for Capital, which mostly emphasizes the management related to risk covering for credits so that the central bank and the other commercial banks under prudential supervision will not have an open position towards an excessive risk that could lead to trust diminution on that segment. This is what the present paper is trying to explain, information gathered from the Basel II Agreement stipulations.
Key words: banking risk, exposure to risk, prudential supervision.
The financial-banking activity, the banking management, can not work but based on certain specific norms and regulations, valid norms both for the central banks of the states which have become members of the European Union’s integrated system, and also for those who want to become members of this integrated system. Certainly, these norms have existed ever since the end of the 20th century (the Basel I Agreement for Capital – 1996) more like a recommendation to obey a specific financial frame, in commercial banks’, but also the central banks’ monitoring, which have significant funds. The above 418 Knowledge Based Organization 2008 International Conference mentioned agreement for capital had to be improved because of the accelerating evolution of a decade’s activity, which generated at the beginning of the 21st century to deal with an adjustment of the respective agreement. This is how the new Basel II Agreement for Capital appeared, which offers an adequate environment to commercial banks’ and credit institutions’ risk portfolio, - the intention of the agreement being the desire to offer a relative stability of the profile market, and to measure, as much as possible, the entire phenomenon, in its entire dynamics. According to a preliminary study, we will try to present the basic features to cover and take the banking risk, included in the agreement, and also the recommendations from the content – recommendations which, as it is well-known, become compulsory to be assumed by the commercial banks, but also a mark in the supervision activity of the central banks from third states. Therefore, the Basel II Agreement had as rules in the establishment of the minimal borrowed capital level: the risk for credit, correlated with the market risk, mentioned in the 1996 amendment, the Basel II Commercial Agreement is much more complex from this point of view, namely: The Basel II Agreement is structured on 3 dynamic and financial pillars, namely: Pillar I, where it is being stipulated: a. The risk for credit with standard approaches, but also based on internal rating models (I.R.B.); b. The market risk analyzed and exposed from the point of view of the above mentioned 2 models; c. The operational risk, with approaches of certain basic economic and financial indicators, advanced standardized evaluations. Pillar II: The supervision of the capital’ s management, which will imply an emphasis of the role of the financial-banking supervising authority, respectively the national banks of the states had in view, implicitly of the increase possibilities of the capital’s level, already stipulated in the regulations regarding the risk cover for Pillar I. Under this aspect, we must underline the fact that the third states’ national banks can re-direct their monetary policy strategies towards adopting new criteria concerning the banking control supervision.
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Pillar III: Respecting a market discipline on the respective financial-banking segment, with the purpose of increasing the modern reporting exigencies, a more obvious and explicit transparency of the banking segment towards the depositor creditors, share-holders and authorities. As it can be noticed, the Basel II Agreement is structured differently from Basel I Agreement; it is more detailed as far as the risk exposure is concerned, its structures being gradual ad aiming a more adequate integration of the working banking capital. For the banking-real-estate credit activity, we believe that Pillars I and III are more important; on the first pillar we find an emphasis of the possible risk that the ones dealing with this kid of economic segment might encounter. On pillar III the market discipline that must be respected is being emphasized, on the financing and processing of the respective operation, especially in the matter of loans on mortgage financing. It is well-known the fact that in the financing by credit activity in general, and the loans on mortgage one, in particular, either of mortgaged or investment-mortgaged character, it is a financial segment with a growing competition for obtaining a profit much above the existing average in other fields, such as: the textile and clothing industry, the large consumption goods, etc… Under the above mentioned context, we state some aspects, such as: - granting loans and making deposits, specific credit lines, both at the head office of some high reputation banks, but especially at their branch offices in Romania; - creating the specific environment for transfers, mergers and mortgage purchases, financially sustained and profit generators; - the gradual increase of the market quotation owned by the banks which have as a significant activity the real-estate one, from 56,3% at 30.09.2006, to 63,2% at 30.09.2007, when the number of the banks from this category has risen from 4 to 6, according to the RCB’s sources. The big banks (B.C.R. – ERSTE, B.R.D., S.G…) continue to cover new market segments on this domain, while the medium and small ones are loosing ground because the developed real-estate companies continue to work with already consolidated large-sized 420 Knowledge Based Organization 2008 International Conference banks, and the small and medium banks do not manage to make themselves attractive though the products they offer on the real-estate market. To give examples, we detail the presented aspects:
percentage Specification Big banks Medium ban Small banks
September 2006 56,3 35,9 7,8
September 2007 63,2 29,7 7,1
Without any doubts, we are dealing with dynamism of the banking activity, especially in the real-estate segment, with a variation of the activities oriented towards product units, but more especially towards: - portfolios’ enlargements oriented towards a more diversified clientele; - the development of the banking network and permanent renewal of the banking products; - the clientele’s devotion. We believe it is relevant to make a briefing of the management of the banking information on the respective system, from the point of view of view of the Basel II Agreement, since this is important for a real-estate society. Therefore, it allows it to have an image over the entire flow of the banking capital – where the entity is involved and knows the development stages of these procedures. Moreover, dealing with a tight relation between the banking and real-estate capital, for maximizing the profit, we do not exclude the theoretical and practical possibility that some real-estate companies with extremely high rates of profit to be involved in the decisional-banking process, at a macro- structure. Further on, we show schematically the elements which represent variables of the financial cost, co-related to the effects of applying the Basel II Agreement, such as:
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THE FINANCING COST THE EFFECTS OF APPLYING THE VARIABLES BASEL II AGREEMENT
Influenced by the sensitivity to risk, from Re-financing costs the point of view of the approaches used for quantifications on specific segments.
The management expenses/ taking Although we are dealing with an obviously over, the analysis of credit sustainable increasing tendency, new documents, other documents, credit quality demands should be had in view and surveillance evaluated – since competiton will be the one to demand efficient and standardized procedures for its maintemance.
The risk margin Depends on the risk associated to each exposure, being able to decrease according to the employed approach or the provided bonds.
The implementation cost The allignment to the requirements elaborated by CEBS insure the convergence of the reporting demands, eliminating the negative effects of the major difference regarding the approaches of each supervision autority.
The expected turnover of the capital Possible requirements for higher turnover put by the share-holders as a result of the association between applying the Basel II Agreement and the little capital demands.
We can also underline the fact that inside the banks, at a branch office level in towns, implicitly in Sibiu, there have been implemented reporting frame-works, issued by the Committee of the European
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Banking Supervisors (C.E.B.S.), which are instruments for banking supervision, according to the Basel II Agreement, as it follows: - COREP (Common Solvency Reporting Framework), being transposed at a consolidated level by a mandate of the RCB’s Governor no. 12/2007 regarding the reporting of minimal capital requirements for the credit companies; - FINREP (Financial Reporting), applicable at an individual level, transposed through the mandate of the RCB’s Governor no. 13/2007 regarding the FINREP financial statements at an individual level, applicable for the credit companies. The COREP reports stipulates the information sending which would certify that the credit companies observe the prudence requirements, both at an individual level, as well as at a consolidated level, regarding: - the balancing of the own funds and of the capital requirements; - market and operational credit risks. The FINREP reports, being an interruption between the accounting information and the prudential one, are an instrument for the banking supervisors in order to verify the prudential information. The financial statements due to be published are the ones regarding: - the product approach (for e.g.: public effects and other titles of variable income); - the granted credits, other investments/deposits and the obtained loans which will be described on two categories: credit institutions and the clientele; - compulsory standard format, required by the directive. Under the entire context mentioned above, we distinguish a series of basic coordinates for redefining the strategies used by the banks and the credit institutions, implicitly by the real-estate ones, as it follows: - The adjustment of the business strategies, of the internal policies and procedures; - Adopting the best corporate governing practices, so that each leading structure responsibilities should be clearly defined and separated; 423 Knowledge Based Organization 2008 International Conference
- Re-establishing the significant risk management strategies and of the entire risk management process, developing an efficient and well-structured internal control system, which would ease the access to information; - Re-establishing the credit institutions’ objectives in the banking products and services clientele; - Insuring a highly qualified personnel; - Choosing some IT solutions that would insure the fast access to information and the information’s corresponding quality. From the above mentioned presentation, we find a very important practical element for the strategies had in view by the banks and real- estate and mortgaged investment companies, namely: the credit risk, which we try to show schematically as it follows:
RISK SHARES APPLICABLE TO THE CREDIT EXPOSURES, ACCORDING TO THE STADARD APROACHES FOR THE CREDIT RISK
Risk shares: Requirements regarding Requirements regarding : actual the exposure the guarantee : Basel II
- Exposure is guaranteed - The immovable property’s with first grade mortgages value does not depend on the locative morgage very much on the debitor’s Locative loan properties which are or credit risk. on mortgage will be occupied – There - 50 % are also had in view the - The debitor’s credit risk does - 35 % exposures in the leasing not depend very much on the on mortgage transactions. performance of exploiting the immovable properties or of the - The exposure represents support project, but on its ability almost 75% of the to repay the debt from other property’s value. sources.
Referring to the requirements regarding the exposure to risk, if we can talk about solid guarantees and extremely severe insuring 424 Knowledge Based Organization 2008 International Conference measures, the Basel II Agreement foresees a weakening of the entire above mentioned staging, given the measures already initiated by some banks, according to which, the loan on mortgage can pass on to the future generations as well, therefore, we shall be facing a relaxing of the risk from this point of view. Referring to the latter aspect, the guarantee requirements regarding the real-estate-mortgage matter, we consider that both the overall view regarding the present situation, but more especially the future one can fit into the directives stipulated in the Basel II Agreement.
References [1] Cema, Silviu, Banii şi creditul în economiile contemporane, Ed. Enciclopedică, Bucureşti, 1994. [2] Dragomirescu, H., Sisteme, metode şi tehnici manageriale, Ed. Didactică şi Pedagogică, Bucureşti. [3] Manolescu, Gh., Managementul financiar, Ed. Economică, 1995. [4] Thomas, Mayer, Banii, activitatea bancară şi economia, Ed. Didactică şi Pedagogică, Bucureşti.
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THE ROLE OF TOURISM IN THE SUSTAINABLE DEVELOPMENT OF THE MOUNTAIN-RURAL AREA OF ROMANIA
Blaj Robert, PhD, Stanciu Mirela Aurora PhD
Forest County Office of Sibiu, ”Lucian Blaga” University of Sibiu
Abstract The mountain region of Romania represents about one third of the country’s surface and is at the same time the biggest mountain in Europe residing in the framework of the same border. The surface is 79.919 km2 out of which 53,3% are forests with a 74,4% fforestation and 41,1% agricultural grounds. The coverage represents 46% of the territory of 28 counties, 729 localities with 3900 villages and 92 mountain cities. The implications of tourism development in this area presuppose a global, integrated concept as approach to correlate harmoniously with other activities. Alpine agriculture is not able to cover all food necessities for its population but it needs to be taken into consideration because of the occupational structure and the population implied.The mountain area is considered to be unpropitious and that is the reason why it needs to be sustained by compensation of natural handicaps and promotion of lasting agricultural systems and complementary activities.
Keywords: rural tourism, sustainable development, mountain area
The mountainous area of Romania is an area of national interest, which involves economic, social and natural environmental features. This area represents about one third of the national territory, and in the same the biggest massive mountain of Europe in the same borders. Its surface is 79,919 km2 of which 53.3% forests, 74.4% with the degree
426 Knowledge Based Organization 2008 International Conference of fforestation and land 41.1% agricultural land representing 46% of the 28 counties within 729 communes with 3900 villages and 91 mountainous towns. Of the total area, in the mountainous area meadows and natural pastures represent 71.7%, 25.6% arable space, while trees and vineyards represent 2.7%. In the mountainous area live 3,600,014 inhabitants (45/km2) of which over 2 million are farmers who have about 1 million private households practicing traditional agriculture based mainly on growth of ruminants in the extensive system . In the 28 counties with mountain area of our country in 2006 there were identified approximately 3600 households and hostels from which -1600 certified a total accommodation capacity of approximately 30,000 seats. [1] Law nr.347 of 14/07 / 2004 reffers to the main possibilities of development and production of the mountainous areas through the development of resources, by stabilizing population ,growth of economic power at the local and national level and conditions of preserving the ecological balance of natural mountainous environment, respecting the principles established by international rules on sustainable mountain development. GD 318/2003 sets out actions at regional and local levels regarding the development of mountain areas of Romania. Thus, it was organized and operates an inter-committee and district committees also for the mountain area. The National Agency of mountain areas pursuits attaining sustainable development objectives in this zone. Mountainous policy aims to exploit sustainable mountainous resources, the landscape preservation and biodiversity as and the development of economic activities specific to this area.[2]
Principles and objectives of development montane. Mountainous touristic area involves addressing it in a global conception related to activities from other sectors, in the context of a respectful behavior towards the environmental space. Fitting mountain tourist area covers a range of issues: • touristic development of national and regional parks, and of natural reserves; 427 Knowledge Based Organization 2008 International Conference
• touristic development of a mountainous rural to ensure the development of rural cultural and ecological tourism, and mountainous agro tourism; • touristic development of climatic areas from the mountainous rural; • touristic development for the development of classic mountainous tourism and providing base materials needed in order to practice sport in mountainous area. In some areas of the mountainous area where parks and natural reserves prevail or where there are historical landmarks or cultural significant sports facilities, rural tourism and mountainous agrotourism is specific. Once with our country's accession to the EU we have access to a range of funds for modernization and the expansion of tourism infrastructure in general and agricultural esspecially. In Europe there is a big demand for rural tourism. Romania is a suitable destination for agro-tourism and ecotourism because there is a real Romanian rural touristic product represented by landscapes, unpolluted environment, traditions, diverse activities of spending time. Projects reffering to general development existing in the EU are considering the options on some traditional lifestyles based on a friendly coexistence relationship with the environment, with respect for the consumption of resources, a diet based on natural products, creating and strengthening cultural identity of rural collectivities. Rural tourism can have a strategic function in the process of transition faced by Romania, with particular reference to purposes of the rural world. This 'emerging sector' can be considered as a dynamic sector of a policy of sustainable development, and for some options in terms of decentralization, of development of civil society and international cooperation. Duties of rural tourism [3] Rural tourism can be qualified as the process of sustainable rural development, to the extent that: • it shows that rural areas are not limited just to agriculture, to simple production activities, but that there are other potential
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unexploited resources that allow diversification of local economic structure and creation of new jobs; • it is desired and managed by local people and is based on the preservation and development of the local resources of the natural environment, historical resources, cultural, economic, human resources • it is based on an important investment in mobilizing, training and participation of local entrepreneurs; • it is a business service - quite rare in rural areas - which largely supports the development of civil society (associative life) and small and medium enterprises, • it allows the development of micro - projects of the human dimension , involving also the idea of network, which facilitates from the beginning the cooperation and exchange experience, the very nature of the business is founded in fact, moreover, on the circulation and meeting • rural tourism appeals to the notion of country (as given) or territory, not Relying on an administrative division but from a geography related to the consistency of touristic activity. He thus opens perspectives in the field of regional development and cooperation; • rural tourism allows a holistic approach / integrated of the development of local / regional space , he makes possible the contact with many other sectors / issues (multidisciplinary): training, spatial planning, equipment and infrastructures, development of the culture and heritage, environmental protection, creation of associations, local autonomy, local craft and trade, etc.;. The emergent nature of rural tourism, causes a large participation in this sector of the various categories of public: • • rural populations: Farmers, craftsmen, traders, local entrepreneurs and local development associations, and those who will practice new jobs related to rural tourism; • • local and regional who will benefit from the economic and development dynamics of printer rural tourism;
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• • associations responsables for coordinating the activities of rural tourism organized on a territorial basis or according to a succession of activities; • • companies or travel agencies specialized in activities of rural tourism. Special attention should be given to encourage the access of young people and unemployed that come from those regions and retraining of personnel or staff of rural people, victims of the restructuring of certain sectors of activity, .For example, drastic reductions in staff in the mining sector reache a number of people from rural areas who can not find in a city redevelopment opportunity in similar activities. Areas of intervention of rural tourism. The definiton given and the role of rural tourism open a wide fan of possibilities for intervention, such as: ¾ definition of the content, organization and animation of training activities aimed at active individuals and promoters of the project (hosts, tour entrepreneurs, officials and the elected), associations or bodies of coordination or training. ¾ support in the creation of rural touristic activities (animation, tours, guides, festival, etc.). in areas such as the discovery of nature, heritage, sport or recreation (walking, horseback, skiing background, etc.).. ¾ creation of local / regional structures of concentration and coordination to join public and private partners, local and national ones (forthe organization of the reservation of seats, advertising, for creating circuits, offer guides). ¾ carrying out works and infrastructure facilities of the counties concerned to develop tourism (among other things, help to improve housing for tourists` accommodation). ¾ creation activities in tourism related sectors, such as processing of agro-food production, trade and local craft administration of natural, historical heritage, cultural heritage, architecture, environment and spatial planning. ¾ organizing events or the creation of instruments of information, awareness, advertising, exchange of experience for the public aimed at launching a professional overview of rural tourism in Romania. 430 Knowledge Based Organization 2008 International Conference
¾ the advertising / touristic launch of the areas targeted for different categories of customers, both inside and outside Romania (markup, reporting, the creation of advertising tools). Multidisciplinary nature of tourism and his complementarity with other sectors of activity is explained by the need to take account of issues such as protection of sites and the environment in general or in contact with the education and training sectors. These problems orient the direct reflection to a more integrated approach, suggesting a trend evolution towards a decentralized development and regional of tourism, being aware that in many countries of Central and Eastern Europe (PECO), the structure of state and the slowing in the privatization of the touristic sector are a brake on change. According to these points of view the importance of tourism is so multiple and can play a strategic role in the process called 'transition' in Romania. Following the example of what has been done in the European Union, tourism could be considered as a crucial sector for the economic development of PECO “which is also an undeniable social component that facilitates recognition of diversity (culture, places, ways of life) and reducing regional dissapearences ...”.
References [1] Ungureanu Danut -Decision-makers role in the sustainable development of rural-mountain area. Paper Released volume Symposium 'Romanian rural tourism. News and perspective. Methods of research and analysis. Impact problems', held in Vatra Dornei between 27-28 May 2005.Publishing House Performantica Iasi, pp 14, Iasi, 2005 [2] Albuţ Aurelian - Mountain area and rural tourism. Paper released in the volume Symposium 'Romanian rural tourism. News and perspective. Development potential. Marketing and human resources. 'Held in Vatra Dornei between 27-28 May 2005. Publishing House Performanica Iasi, pp 85, 2006, Iasi [3] Stanciu Mirela, Sanislav M., Turcu D. M., Pomohaci M., Spânu Simona, Considerations regarding the role of tourism in rural development, Scientific Report “Acta Universitatis Cibiniensis”, Agricultural Science Series, vol 1, no. 1 (6) -2006, University Publishing House. “L. Blaga” Sibiu, ISSN 1582, pp 84, Sibiu, 2006
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SOME ASPECTS REGARDING THE EXTERNAL AUDIT OF EUROPEAN UNION FUNDS
Ec. Bobeş Florina
CN Transelectrica Ltd., Sibiu, [email protected]
Abstract Romania adopted for the period from 2007 to 2013, in its capacity of Member of the EU, a series of operational programs for supporting the work force employment and for strengthening the institutional capacity, competitiveness and convergence, programs co-funded from funds of the EU. The measures of the community structural policy are funded from three funds: Structural Funds (European Regional Development Fund – ERDF and European Social Fund – ESF) and the Cohesion Fund (CF). These three funds are main titles Structural and Cohesion Funds (SCF). Therefore, the competent national authorities must insure, within the EU means management that the entities to whom EU funds were allocated comply with the relevant community legal provisions, as well as the national provisions regarding financial support. The Court of Accounts of Romania - in its capacity of supreme institution of audit - can contribute, as well, within the external audit, to the legitimate use of the financial resources of the EU funds.
Keywords: external audit, European Union (EU) funds, project audit.
The European Union operates based on the article 158 of the Treaty Establishing the European Communities (TEEC) in the sense of consolidating cohesion. An important objective is that of reducing the differences existing between the development stages of different regions. This objective is provided by the Economic and Social Cohesion Policy, which represents the fundamental politics of European Union.
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1. The objectives of the Economic and Social Cohesion Policy The intervention objectives of the Economic and Social Cohesion Policy are: 1.1. Convergence Within this objective, the convergence of the Member States and of the Regions with the highest development deficit must be accelerated. In this sense all the Regions, having a Gross Domestic Product (GDP) per inhabitant of less then 75% of the average community GDP, can be funded. The priorities under this objective are human and physical capital, innovation, knowledge society, environment and administrative efficiency.
1.2. Regional Competitiveness and Work Force Employment In the sense of this objective, all the Regions which are not eligible within the convergence objective can be funded. It aims at reinforcing competitiveness, employment and attractiveness of these regions. Innovation, the promotion of entrepreneurship and environment protection are the main themes of this objective.
1.3. European Territorial Collaboration Through this, interstate collaboration within the Community is intended. Its aim is to promote cooperation between European regions, as well as the development of common solutions for issues such as urban, rural and coastal development, economic development and environment management. This objective is divided in 3 strands: cross-border cooperation; transnational cooperation; interregional cooperation.
2. European Union Funds for the period from 2007 to 2013 The measures of the community structural policy are funded from three funds: Structural Funds (European Regional Development Fund – ERDF and European Social Fund – ESF) and the Cohesion Fund (CF). These three funds are main titles Structural and Cohesion Funds (SCF). With these funds, in the period from 2007 to 2013, measures will be funded serving the achievement of one of the three generally defined objectives.
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The total sum of structural and cohesion funds which are allocated to Romania is about 19.668 billion Euro, from which 12.661 billion Euro will be allocated through the Structural Funds, as part of convergence objective; 6.552 billion Euro were allocated through Cohesion Fund, and 0.4555 billion Euro will be allocated for the European territorial cooperation objective.
The separation of the cohesion finances on thematically priorities in subsidiary on Operational Programs and Funds was established based on several items: - The development stage of Romania economy; - The general and regional disparities in comparison with the EU levels; - The integration of Lisbon Strategy, revised in the Romania development model; - The huge value of the investments necessary for the basically structure; - The necessity to increase the economy competitiveness; - The correlation for the competitiveness growth with the development of some human resources sufficient and well qualified; - Adherent costs according with communitarian acquis after the adhesion; - Models of structural instruments allocation in EU, especially in the new Member States, whose development level is closer to the Romanian situation. Thus, the following allocation of EU funds of thematically priorities of National Strategic Environment o Reference has been made: 9 The basically substructure development at EU standards: ~ 60%;
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9 The improvement of competitiveness, on the long term, of Romania economy: ~ 15%; 9 The development and the utilization more efficient of Human Capital from Romania: ~ 20%; 9 The consolidation of an efficient administrative capacity: ~ 5%.
3. The Implementation of the Structural Fund Investments For the implementation of the structural fund investment, the Community prepares Cohesion Strategic Guidelines, through which the priorities are established for each of the fund objectives. Based on this, each Member State conceives a Reference National Strategic Framework (RNSF) together with the Commission, which represents a reference framework for the preparation of the program planning. The concrete implementation of the national reform program takes place subsequently through Operational Programs, also prepared by the Member States, which must contain certain specifications. The Member State presents the Operational Program (OP) to the Commission. It verifies the OP and, eventually, requests the Member State to perform changes, and then approves the OP. As regards the concrete measures, applied within an OP, the following concepts are relevant: Priority Axis: One of the strategic priorities of an OP, which includes a set of associated measures. Operation: A project or a set of projects selected by the Managing Authority of the OP in question and implemented. The smallest unit of a program is, therefore, a project.
4. Types of audit The audit that the Court of Accounts of Romania performs on the EU funded OPs will refer, in the case of regularity audit, to the project concordance with the EU law and with additional national dispositions. Here are included both the institution and compliant operation of the management and control system at the level of the Member State, as well as the errorless calculation, justification and accounting of the expenses co-funded by the beneficiary.
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Just as in national projects and institutions, the EU means management can also be verified as concerns the performance. Starting from the performance audit performed by the Court of Accounts of Romania, this type of audit does not exclusively refer to the community norms.
5. Auditing Fields As auditing fields for external organizations (Court of Accounts of Romania) the following are taking into account, in principal: a) The existence and suitable operation of management and control system; b) The performance of the projects which are funded through EU Funds, as well as the funding procedure.
5.1. The management and control system audit The main actors in the Management and Control System are: ¾ the Managing Authority manages the OP and bears the responsibility for the operation application according to the budget performance management principle. Amongst its duties, there are also purely administrative activities. Also, it must insure that the co-funded projects are selected according to the Regulation, based on the criteria valid in the OP. On the other hand, it must also fulfill duties in the field of financial control. It must insure that all the expenses invoked by the beneficiary were made and that services correspond to them in return. The financial control includes: administrative checks as regards every reimbursement settlement submitted by the beneficiaries and physical checks of the individual operations. ¾ the Certification Authority is, especially, charged with certifying the fact that: the expenditure statement is exact, is performed on the basis of reliable accounting system and supporting document which can be verified; the stated expenses are compliant with the applicable community and national norms and they were borne for the operations selected for funding according to the criteria
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applicable to the program and to the applicable community and national norms. ¾ Intermediary Entities - both the Managing Authority and the Certification Authority can establish Intermediary Entities in order to delegate duties (but not responsibility, however). ¾ the Auditing Authority will have the mission of checking the effective operation of the Management and Control System. It must be independent from the Managing Authority and from the certification one. The main concrete duties of the Auditing Authority are: - audits during the performance of the OP; - reporting and periodical opinions; - the preparation of partial and final statements. The Member state is the one who appoints these actors and presents them in the OP.
5.2. The project audit The regularity audit of the projects approved for the transposition of an OP is a key point of the audit performed by the Court of Accounts. Upon the performance of these projects, the following stages differentiate themselves: ¾ The initial stage of project approval. The auditing of the projects by the Court of Accounts of Romania planned for the near future will be limited to projects in the initial stage, therefore, to project checking and approving procedures. As the approved OPs must be supported by national transposition rules , it will be supposed that, at least in this year and in 2009, the first projects can be approved, but the development stage has not begun yet, and the final beneficiaries have not yet requested payments. The approval decision represents the basis of the subsequent payments of the EU funds and, therefore, it can be audited independently. ¾ The performance stage with the parties’ approval and the project assistance. An audit during the performance stage is justified by the fact that such found errors can be corrected during the project performance, thus avoiding the beneficiary’s obligation to reimburse eventual illegal 437 Knowledge Based Organization 2008 International Conference
payments. During the performance stage, the inclusion within the audit of the administrative documents in the initial stage might also be useful, thus analyzing besides the project performance according to the Regulation, the verification of the documents based on which the project funding was approved, as well. ¾ The final stage with the project conclusion and the fun use auditing. The mentioned stages can be subject, in a whole, to an audit, in the final project stage. The errors identified subsequently within this audit will eventually lead to the obligation of returning the granted payments, but otherwise, for conclude projects they only have the character of findings. The knowledge of these errors can still contribute to non-repeating them within future projects.
References [1] Arens, Alvin; Loebbecke, James, Auditing: An Integrated Approach, 8th Edition, published by Pearson Education, 2003. [2] Drăgan, Gabriela, European Union between federalism and intergovernmental. Common politics of UE, ASE Publishing House, Bucureşti, 2005. [3] http://www.europa.eu.int [4] http://www.infoeuropa.ro
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THE AUDIT PERFORMED BY THE EUROPEAN COURT OF AUDITORS – OBJECTIVES AND RESPONSABILITIES
Ec. Bobeş Florina
CN Transelectrica Ltd., Sibiu, [email protected]
Abstract The European Court of Auditors, set up in 1975 and based in Luxembourg, is the European Union institution responsible for auditing Community finances. In contributing towards improving all aspects of financial management of Union funds, the Court performs a vital role for the citizens of the Union. The Court provides auditing services for checking the collection and spending of EU funds. It examines whether financial operations have been properly recorded and presented, and legally and regularly executed and managed in order to ensure economy, efficiency and effectiveness. The Court's findings are given in public audit reports. It is also the responsibility of the European Community and the Member States to combat fraud and all other illegal activities which are detrimental to the financial interests of the Community.
Keywords: financial management, financial audit, sound financial management.
The European Court of Auditors is an independent institution whose main role is to check that the funds available to the European Union are used legally, efficiently and for the intended purposes. The Court audits the accounts of the EU's income and expenditure, which together form the EU budget. This role is especially important as part of the EU's income is derived from contributions from the member states and so the Court ensures that the EU's citizens are getting maximum value for their money. The European Court of Auditors was created by the Treaty of Luxembourg, signed 22 July 1975, and took up its role as the external
439 Knowledge Based Organization 2008 International Conference audit body of the European Community in October 1977. Originally, there were in fact five different budgets and the European Coal and Steel Community, EURATOM and the European Community had different mechanisms for auditing their different budgets. The Treaty of Brussels, signed 8 July 1965, created one set of institutions and one budget for the three communities. The Treaty of Maastricht (1992) elevated the Court to the status of an institution alongside the European Parliament, the Commission, the Council of the European Union, the European Council and the European Court of Justice. The Court has the power to audit any person or organization handling EU funds, including national authorities in the member states, other EU institutions and even other countries that receive money from the EU. It then produces reports on its findings, which highlight for the Commission and the member states any issues it has uncovered. The Court of Auditors also gives its opinion on proposals for EU financial legislation and for EU action to fight fraud. However, the Court itself has no legal powers - if it discovers that EU funds are being misused, it then passes this information to the European Anti- Fraud Office (OLAF). The Court of Auditors is based in Luxembourg and is made up of one member from each EU member state. Members are appointed by the Council of the European Union for a renewable period of six years. The members then elect a President from among their number, who serves for a renewable period of three years. The members of the Court of Auditors have to be qualified as auditors in their country of origin, or to have worked for an auditing institution. They have to be entirely independent and are chosen for their competence. Articles 246 to 248 of the EC Treaty sets out the mandate and composition of the European Court of Auditors. The mandate is summarized as follows: The European Court of Auditors: • audits the accounts of all the revenue and expenditure of the European Union and, unless otherwise specified, all bodies established by the Union; • examines whether all EU revenue and expenditure has been received or incurred in a lawful and regular manner, and
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whether the financial management has been sound, with due regard for economy, efficiency and effectiveness; • produces an Annual Report containing its observations on the execution of the European Union budget for each financial year, including a Statement of Assurance (DAS) on the reliability of the European Union accounts for that year, and the legality and regularity of the underlying transactions; • may submit observations on specific topics of its choice at any time, particularly in the form of Special Reports; • reports on cases of irregularity or suspected fraud detected in the course of its audit work; • provides formal opinions on proposals for EU legislation of a financial nature; • is consulted on any proposals for measures in the fight against fraud; • assists the discharge authority –European Parliament- in exercising its powers of control over the implementation of the budget of the European Union through the publication of audit reports and opinions. In line with other public audit institutions, the European Court of Auditors undertakes two different types of audit, namely financial audit and sound financial management audit. Financial audit - according to the Treaties and the Financial Regulation, it is the duty of the Court of Auditors to audit the financial statements on the revenue and expenditure relative to the general budget of the European Union, the European Development Funds and all bodies and agencies set up by the Union. In general, these comprise a balance sheet, an economic outturn account, a cash-flow table, a statement of changes in capital and explanatory notes. The objective is to establish whether the financial statements show a true and fair view of the results for the year and the financial situation at the year end: that transactions, assets and liabilities have been fully and correctly entered into the accounting records; that they exist; they belong to the audited body; and are correctly presented in the financial statements. An assessment is made of the appropriateness
441 Knowledge Based Organization 2008 International Conference of the accounting principles used, and of significant estimates made by management. The Treaties and the Financial Regulation require the Court to audit the legality and regularity of the transactions by which the EU finances and implements its budget. The objective is to ensure that transactions have been executed in accordance with the relevant rules and regulations, that they exist in reality, have been correctly calculated and that the beneficiaries of EU aid have fulfilled their obligations. The audit covers all aspects from receipt or payment by the Commission through different levels of administration down to individual elements of EU revenue or receipt by the final beneficiary. Sound financial management - the objective is to evaluate how well the Commission and the Member States have applied the principles of sound financial management - economy, efficiency and effectiveness - to their management of European Union funds. Such audits are also known as performance audits and value for money audits. According to the Financial Regulation, EU funds should be managed based on the principles of: • Economy - for a given output or objective the minimum amount of funds have been used; • Efficiency - best value is obtained for the money spent; • Effectiveness - the objectives of the EU policy have been met. The Court, in common with other public audit bodies, has two different approaches to sound financial management audits, depending on the topic under audit and the risks involved. The first approach is to evaluate the management of the expenditure, and particularly the measures taken to achieve value for money. This involves making an evaluation of the approach taken by management and the systems used for ensuring value for money, and testing the decisions taken. The audit concludes on whether the approach taken by management was likely to ensure value for money, and if not, how it could be improved. The second approach comprises an assessment of whether a given programme or project met its objectives and achieved value for money. This involves an examination of whether, and how, the 442 Knowledge Based Organization 2008 International Conference objectives of the specific expenditure were achieved, and an assessment of whether the minimum resources were used for that outcome. The audit concludes on whether value for money was achieved for the programme, and if not, how it could be improved. The Court also pays particular attention to adding value to financial management through its audit work by not simply highlighting weaknesses, but by identifying how European Union funds can be better managed. This includes making suggestions on how to cost-effectively: • improve compliance with legislation; • reduce the risk of errors and irregularities; • improve the organization of European Union activities and its internal control systems; • make the European Union actions more transparent by improving accounting methods and procedures; • achieve EU policy objectives more effectively and efficiently. The European Court of Auditors reports on any irregularities and suspected fraud. The primary responsibility for the prevention, detection and investigation of errors and irregularities rests with those responsible for the management and execution of EU programmes i.e., the European Commission and the Member States. The Court assesses how well the Commission and the Member States fulfill their responsibilities in this field, and identifies how improvements could be made. When a case of suspected fraud, corruption or any other illegal activity becomes known to the Court, either through its audit work or when the case is reported by a member of the public, the matter is immediately communicated to the European Anti-Fraud Office (OLAF). OLAF is responsible for undertaking detailed investigations and instigating prosecutions in Member and beneficiary States, and following up the resulting recovery of EU funds. The European Court of Auditors contributes towards improving the financial management of European Union funds at all levels of administration, so as to ensure maximum value for money for the benefit of the citizens of the Union.
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References [1] Bernicot, M., Developments in the EU Funds Audit, paper presented at EUROSAI, 6th Training Event, Prague, 6-8 Nov. 2006. [2] Weber, H., Auditing European Union Funds, paper at 10th Anniversary Conference at the National Audit Office of Malta, ECA, 18 May, 2007. [3] http://www.eca.europa.eu [4] http://www.eurosai.org
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COMPETITIVENESS POLITICS. NOTION, CHARACTERISTICS AND TREATIES REGULATIONS
Ec. Paulescu Ioan Anton, Asst. Prof. Andriţoi Claudia, PhD
”Eftimie Murgu” University, Reşiţa
Abstract The competitive rules are not representing a purpose by their own, but a premise of the efficient functioning of the single internal market, “a system that assures competitiveness without distortions on the internal market” (Article 3, alin.1 g, from the EC Treaty). The Commission and the Justice Court of Law have identified a series of abusive forms aside with the main ones, stated right in the EC Treaty: discrimination practiced by prices for geographical areas, the refunding of some amounts for fidelity that do not allow the clients to obtain products from the competition suppliers, decreasing the prices in order to eliminate the competitiveness, unjustified refuse of supplying that can lead to the elimination of competitiveness, the refuse of license issued. The Commission and the Justice Court of Law interpreted the state aid concept in an extremely large way: it includes any public aid or any aid given by the local or regional authorities. The aid can come even from private organisms (private commercial societies or public societies that operate in a commercial regime) or from any other organisms on which the sate, a public institution or a local or regional authority has a powerful influence directly or indirectly.
Keywords: monopolization, competitive rules, cooperation, dominant position, cartels.
The nominative objective of a competitiveness policy is to promote and defend the competitive environment inside the national economy. The politic economy argues that the existence of competitive markets represent the main mean to maximize the social
445 Knowledge Based Organization 2008 International Conference wealth, as well as the competitive process assures the maximum efficiency in allocated the resources inside the national economy.1 The politics from the competitive field must guaranty the unity, homogeneity and viability of the internal market by: • Fight against the monopolization of certain markets by societies that set between them protective agreements – restricted agreements and fusions; • Prevent the exploitation of economical power of some societies above others - the abuse of dominant position; • Prevent the distortions of the competitive rules by the governments of the member states by discriminative support in favor of certain public or private economic operators – estate aids. The competitive rules are not representing a purpose by their own, but a premise of the efficient functioning of the single internal market, “a system that assures competitiveness without distortions on the internal market” (Article 3, alin.1 g, from the EC Treaty). As by the Art.81, alin.1 of the EC Treaty sets, in all three mentioned domains that the competitive rules are applicable, the limitations are pointing the practices that have impact on the commerce between the member states, but under the conditions of the single internal market there are no practices that influence only the commerce from inside an only state, with few exceptions. Because the market economy – the reference point of the economic policy of the Union and the member states – sets the competitive among the main factors of the economical success, the acceptance of the stipulations of this article mean also the best way of accomplishing the consumers needs, but as well as the best way of assuring the competitiveness of the economic operators, European products and services on the international market.
Setting the Competitive Law by Treaties 1. Restrictive Agreements and Concerted Practices The juridical support of the competitive rules concerning the restrictive agreements and the concerted practices is set on the
1 Paralelism şi convergenţă în politicile contemporane în domeniul concurenţei – European Institute from Romania, no.19, November 2006 446 Knowledge Based Organization 2008 International Conference dispositions of chapters 5 and 6 of the Title I from the Euratom Treaty (1957) for the nuclear power industry, and the articles 3, alin.1g), 81, 83, 84 and 85 from the EC Treaty (1957) for all other industries. Article 81, alin.1 of the EC Treaty deny the agreements, decisions and concerted practices between the commercial societies, if these practices “can affect the commerce between the member states and that have as on objective of effect the prevention, restriction or distortion of the competitiveness within the common market”. A restrictive agreement is an agreement that between two or more societies, by whom the parties are obliged ti adopt a certain type of behavior in order to pass over the rules and effects of the free competitiveness on the market. These agreements can be conventions, express or tacitly, bilateral or multilateral. The same article pointed the decisions of the associations of enterprises. It is possible that by setting a professional group not to disturb the competitiveness, but the decision taken by the leadership of that kind of association, general meeting or border council, might have this effect, when forces its members to adopt a collective behavior.2 The horizontal and vertical agreements that set directly or indirectly the prices are forbidden, the agreements on the selling conditions, the agreements that isolate the market segments, the agreements of the production or distribution levels, the agreements on investments, commune sells offices, agreements of market dividing, the collective exclusive markets, the agreements that lead to the discrimination of other commerce operators, collective boycotts, volunteers restrictions. As the Art.81 sets, the European Commission is the responsible institution of applying the competitiveness rules at the level of the entire Union and can also investigates the different cases at the request of the member states or by its own initiative. If any rule trespassing is discovered, the Commission proposes measures that lead to stop those. Basically its role was clarified by the Regulation no.17/62, that
2 Ileana Pascal, Ştefan Deaconu, Codru Vrabie, Niculae Fabian, Politica în domeniul concurenţei, Juridical Resources Centre, Bucharest, 2002, page 10. 447 Knowledge Based Organization 2008 International Conference establishes what can do and must do the commission for investigation and solving the cases from competitiveness area, by individual or group decisions. In the case of the decisions that the Commission found the trespassing of the Treaty, the agreement or the practice are becoming null automatically and must stop immediately. The Commission can set amounts up to 10% from the turnover or penalties of up to 20% from the daily profit, until stopping the trespassing, but cannot accord amounts for damages to the affected enterprises, this aspect being – as the Art.81 sets – the competence of the national courts of law. Also, the same disposition sets that the national authorities can set penalties for trespassing the competitiveness rules. There is the possibility that, based on the Art.81, alin3, from the EC Treaty, some agreements might be authorized even they are forbidden by Art.1, alin.1. In order that these agreements to be authorized, the alin.3 sets the accomplishment of certain conditions. Therefore, the agreement must contribute to the improvement of production or products distribution or to the technical or economical progress promotion, must reserve the users a part of the profit that results, and the restrictions set for the enterprises must not exceed what is necessary for reaching the objectives. A last condition is the one that the enterprises that are a part of the agreement must not eliminate the competition on a substantial range of the market products that are the subject. Therefore, the Commission should calculate an economical balance of that agreement. The parties that desire the exemption of their agreement must also meet certain conditions provided by the Regulation no17/62. When the Commission intends to exempt a certain agreement, it will publish a review and the intention of acceptance in the Official Journal of European Communities. The third interested enterprises can make annotations. The exemption decisions have a limited availability (generally 5-10 years), can be renewed or revoked, as the Commission decides. The enterprises have also the possibility to obtain negative attesting decisions for the fact that a certain agreement or practice does not trespass the stipulations of the Art.81, alin1. In other cases the Commission can issue informal administrative letters instead of the exemption decisions, by which the Commission declares that there is no reason to intervene in the
448 Knowledge Based Organization 2008 International Conference notified activity, in the absence of the changes she could not modify its position and could not set fines for the beneficiary. Certain types of cooperation between the enterprises are considered that having positive effects, and can be exempted for the interdiction, as well as> the exclusivity agreements, license agreement for technological transfer, research-development and specialization agreements, franchise agreements, insurance sector agreements. Those exemptions are given, mainly, on limited period of time, on the base of the regulations no.19/65, no.2871/71 and no1215/99 of the Commission. There are also other types of exemptions of the interdictions, by case to case, as it follows: Regulation no.240/96/EC that concerns the applying of article 81, alin3, for certain types of agreements for technological transfer; Regulation no.2790/1999/EC for applying the Art.81, alin.3 of the Treaty for the vertical agreements and concerted practices categories, its applying on each supplier that own less or alt lest 30% from the relevant market; Regulation no.2658/2000/EC concerning the applying of Art.81, alin.3 from the Treaty on certain categories of specialization agreements that point out only the societies that do not have more than 20% from the relevant market; Regulation no.2659/2000/EC concerning the application of Art.81, alin.3, from the Treaty to the categories of agreements for research and development; Regulation no.1400/2001/EC concerning the application of Art.81, alin.3 from the Treaty to the categories of vertical agreements and concerted practices in the sector of engine vehicles are counting the vertical agreements.
2. Abuse of Dominant Position As stipulated by Art.82 of the EC Treaty, “any abuse of dominant position of one or more enterprises inside the internal market or inside an important segment of this should be forbidden as being incompatible with the internal market, as long as it affects the commerce between the member states”. Aside this disposition there is the juridical support for fighting against the abuse of dominant position: Art.83 (that permits the adoption of regulations and directives) and Art.85 (investigation competences of the Commission) 449 Knowledge Based Organization 2008 International Conference of the EC Treaty. The dominant position is the situation in which the commercial society disposes of such an economical power that it might restrict the competitiveness on the action market. The dominant position acts on a relevant market that leads approximately in the same way as in the case of agreements, concerted decisions and practices. The main elements are the essential characteristics of the product. The following are considered abuse of dominant position: imposition of incorrect prices or commercial conditions; production, market or technological development limitation; processing equivalent transactions in different conditions for different parties; forcing the other parties of a contract to accept supplementary duties that are not a part of the contract. The Commission and the Justice Court of Law have identified a series of abusive forms aside with the main ones, stated right in the EC Treaty: discrimination practiced by prices for geographical areas, the refunding of some amounts for fidelity that do not allow the clients to obtain products from the competition suppliers, decreasing the prices in order to eliminate the competitiveness, unjustified refuse of supplying that can lead to the elimination of competitiveness, the refuse of license issued. Regulation no.17/62 is applying also to the case of dominant position, so that the procedure is almost the same, with the mention that the EC Treaty does not stipulate for the abuse of dominant position any individual or group exemptions. The reform proposes by the Commission should apply to this domain too being in fact dedicated mainly to the situations that reefer to restrictive agreements and concerted practices.
3. State Aids As the Art.87 of the EC Treaty stipulates: “it will be considered not compatible with the common market all state aid that is given by a member state or from state resources under any form that distortion or threat to distortion the competitiveness by given favor to certain enterprises or the production of certain goods as long as it affects the commerce between the member states”. Practically any advantage given by the state or from the state resources is considered subvention when: it confers an economical advantage to the entity for which is designed< is given selectively to certain commercial societies or for 450 Knowledge Based Organization 2008 International Conference the goods production; it might distortion the competitiveness and affect the commerce between the member states. The juridical support of the communitarian politics concerning the state aids is based mainly aside the evoked text, also by articles 88 and 89 from the EC Treaty. The Commission and the Justice Court of Law interpreted the state aid concept in an extremely large way: it includes any public aid or any aid given by the local or regional authorities. The aid can come even from private organisms (private commercial societies or public societies that operate in a commercial regime) or from any other organisms on which the sate, a public institution or a local or regional authority has a powerful influence directly or indirectly. The interdiction is applied to a large number of support measures of all types, no matter if they are direct or indirect. The aid form and purpose and also the reason for it are irrelevant. All that matters are the effects on the competitiveness, that is why not only the contributions its selves (such as subventions) are considered state aid, but also other measures that reduce the financial issues of a firm. An absolute forbidden for the state aids is impossible. Art.2 from the EC Treaty provides the fact that one of the Community objectives is that “to promote a healthy and balanced development for all economic activities from the Community”. The differences in economical development from one state to another and from a region to another can justify the government intervention for fulfilling this duty. Alin.2 and 3 from the Art.87 stipulate a series of exemptions considered compatible with the internal market: the state aid with social character given to the individual consumers under the no discriminative guaranty concerning the origin of products; the state aid given for repairing the damages caused by natural disasters or exceptional situations, a.s.o. Also, the Commission must ensures that the member states give only a compatible aid with the good functioning of the internal market, Art.88 of the EC Treaty force the member sates to announce and to request the approval of the Commission before giving such an aid. The procedure rules concerning the state aid were consolidated and clarified by Regulation no.659/1999/EC, and based on the Regulation no.994/98/EC the European Commission might except 451 Knowledge Based Organization 2008 International Conference certain types of horizontal state aid from the notification requirements: the aid for small and medium sized enterprises, for research and development, for environment protection, for labor market and for formation; the aid based on the Commission approved chart for each member state concerning the regional aid. In case the European Commission considers that a certain type of state aid is not compatible with the common market and is not a part of the accepted exemptions, this will request the member state to comment on this in at least one month. If the justifying of the member state is not satisfactory, the Commission decides that the member state should modify or eliminate the state aid for a given period (normally, two months). If the member state does not conform to the decision of the Commission until the established deadline, the Commission or any other interested member state can bring the issue in the Court of Law. In the meantime, the member state can itself appeal to the Court of Law or the EU Council. The importance of a politics in the filed of state aids was underlined also at the communitarian level by the communication issued by the European Commission in 2005 entitled “Action Together for Economical Growth and Providing Working Places, a New Start for the Lisbon Strategy” set already the framework for a new Action Program Lisbon in which the evaluation an control of state aids are essential. The European Council from March 2005 request that the member states should take measures to reduce the general level of the state aid. Concerning the sensitivity of the state aid issue at European level and its role in achieving the objectives that were established in Lisbon in 2000, the European Commission has already elaborated the Action Plan for the state aid for the period 2005-2009.3
Romania and the Competitiveness Politics As the Art.135 alin.1 of the Constitution stipulates the Romanian economy is a market economy, based on free initiative and competition. These dispositions represent the principle on that all the
3 Jozsef Nandor Nemenyi, Daniel Diaconescu, O temă şi un deziderat de permanentă actualitate: ajutoare de stat mai puţine şi mai eficiente, Revista Profil Concurenţa – no.3, September 2006, page.18 452 Knowledge Based Organization 2008 International Conference developing politics must kept in mind the imperative of promoting the competitiveness and sustainable development. The rules concerning the competition represent the fundament of a functioning market economy, because their purpose is that of promoting the free movement of goods and services and the prevention of distortions that might affect the economical development, the business environment and commerce with the member states of the Union.4
Romania: Adopting the Acquis in Competitiveness Field Since the Association Agreement took effect in 1995 the Association Agreement of Romania to the European Union (the European Agreement), the competitiveness rules were agreeable to both parties, starting basically from those who already have taken effect inside the Union, but having in mind the fact that Romaina is unframed in the regions with a very low living level or having a high level on unemployment (Art.87, alin3, from the Treaty). In case that Romania or the Community consider that a certain practice is incompatible with the rules of competitiveness, or can bring real prejudices of one of the parties, as a result of the discussions with the Association Council, adequate measures can be taken. The agreement states the avoidance of restrictive measures, including the measures for import in order to strike a balance and forbid the restrictive measures applicable to investment transfers. On what concerns the public enterprises and the enterprises that benefit of special or exclusive rights, the agreement establishes the role of Association Council to apply, beginning with 1998, the principles contained by Art.86 from the EC Treaty. In order to implement the competitiveness politics in conformity with Romania’s assumed commitments on negotiation Chapter no.6, “Competitiveness” beginning with 1996 laws respecting the communitarian acquis were issued, and until this moment they were revised and issued with modified and with necessary completions.
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The Anti-Competitiveness Practices in Romania The Competitiveness Law no.21/1996, modified and republished several times in 2005, administered by the Competitiveness Council – organism crated in order to implement the competitive politics in Romaina. The addressees of competitiveness law are: ¾ The economical agents or their associations ¾ The local public or central authorities The law forbids at art.5, alin.1, the anti-competitiveness practices as it follows: ¾ The agreements between economical agents ¾ The decisions taken by the economical agents associations ¾ The concerted practices Bounding, keeping under control or distort the competitiveness on the Romanian market or on a part of it. The interdiction provided by art.5, alin.1 does not apply to agreements that are considered to have a competitiveness impact. Also, the law contains certain exemptions that enter to agreement category that can lead to the growth of efficiency and are a benefit for consumers. The interdictions are always applicable for: ¾ Prices/rates; ¾ The agreements of market arrangements; ¾ Participation on fixed auctions. Fixing an auction embraces several forms, but all based on a fundamental scheme: the ones that offer agree not to compete in auction in order to obtain the auction subject at a better price than the competitiveness one (competitive price). The competitiveness authority interferes in case of suspicion of trespassing the art.5, letter f) from the Competitiveness Law, that means to meet all the following conditions: the auction procedure is taking place by the rule of law, the agreement is set between the ones who offer (horizontally); the agreement has as purpose fixing the offers. Also, at art.6 of the above mentioned law, it is forbid to make an abuse of dominant position defined by the law as being the situation when an abuse of dominant position stipulated by law as being the 454 Knowledge Based Organization 2008 International Conference situation when an economical agent is capable to act on their own apart from the suppliers, clients and competitors because on their power on the market. The dominant position of a society on market is not forbidden, yet the abuse of dominant position is. The abuse of dominant position can reside from: ¾ The exploitation of an dependent economical agent ¾ Prices imposition ¾ Production and supplying limitations ¾ Excessive prices or ruination ones In case that an anti-competitiveness practice is done the Competitiveness Council brings to attention some intermediary measures in order to prevent or to not allow a serious and cert prejudice, and requests the immediate stop of the anti-competitiveness practice and apply fins. The essential information resource for detecting the trespassing of competition rules are the complaints that in order to be admissible must contain certain information as described in the Regulation annex for application art.5 and 6 from the Competitiveness Law no.21/1996., concerning the anti-competitiveness practices in case of complaints (issued in M.Of., Part I, no.430/2004)/Complaint form. In case that the complain object is confirmed, accordingly to art.51, alin.1, the Competitiveness Council give fins, the maximum could be up to 10% from the trespasser’s turnover. Article 52 individualizes the sanctions in connection with: act gravity, duration and consequences upon competitiveness. Also the Law no.21 stipulates the situation in which the Competitiveness Council can practice a clement politics that has as an objective encouraging the firms to reconsider their position and to cooperate with the competitiveness authority in order to interrupt the anti-competitiveness practices. The beneficiaries of the clement politics are the firms that cooperate in finding the cartels that have as a benefit the favorable treatment as the fin immunity. Fin immunity is given when the economical agent is the first that reveals probation elements that in Competitiveness Council opinion permit the beginning of the investigation procedure or is the first that reveals the probation elements that in the Competitiveness Council
455 Knowledge Based Organization 2008 International Conference opinion permit trespassing probation in conformity with art.5, alin.1 from Competitiveness Law. The conditions that must be fulfilled by the economical agent in order to benefit of fin immunity are the following: total, continuous and immediate cooperation with the Competitiveness Council; stops the participation in the illegal activity the latest at the moment the probation elements are brought into light; does not take measures for constrain other economical agents to participate at the illegal activity. Immunity is given for the first economical agent that informs the Competitiveness Council on the existence of a cartel.
State Aid In the filed of state aid the Law no.143 from July 27th 1999 was adopted and republished in 2005. This law was repealed by the OUG no.117 from 2006 concerning the national politics for state aid, and on the 1st of January 2007, for Romania as a member state, as a difference from the anterior procedures in which the Competitiveness Council is involved, state aids are approved only with the direct authorization of the European Commission.5 The state aid represents any support measure granted by the state or by the administrative territorial units from state resources or the administrative territorial units or other organisms that administrate state or local community resources. Accordingly to the in force laws the state aids of a certain quantum must be compulsory notified by the Competitiveness Council and cannot take effect without the authorization of this organism. They are compatible with the competitive environment and are notified to the Competitiveness Council: • The social state aids granted to individual consumers under the condition to be given without discrimination on which concerns the products and services origin; • The state aids for abating the effects caused by natural catastrophes or by exceptional events. State aids are materialized by: public funds transfer towards any enterprise (any physic or juridical body, no matter which is the
5 www.consiliulconcurentei.ro , Monthly Bulletin, December 2006, page 2 456 Knowledge Based Organization 2008 International Conference organization form and that develops total or partial profitable activities) and the renounce any further incomes (certain or possible) and that assures an economical or financial benefit to an enterprise, hat otherwise could not be obtained in the lack of these measures. The state aids can be subventions, debts annulations or losses overtaken, exemptions, reductions, delays for tax payments, renounce to normal incomes obtained from public funds including the loan granting with preferential interest, guarantees granted by state or by other local or central authorities, or other organisms that administrate in preferential conditions the resources of the state or the local communities, state capital participations or of the central or local public authorities or other organisms that administrate the state resources or the local community ones, if the profit rate for these investments is lower that the normal one anticipated by a prudent private investor. After the 1st of January 2007, the Competitiveness Council has obligations connected to: the preparation politics for notifies (for state aids under this requirement) and information on the documents that will be the subject of Council authorization before transmitting it to the European Commission, representing Romania at the European Commission as a competitive authority, monitoring the state aids (organizing the state aids register and elaborating the annually report for the state aids granted in Romania), releasing the repaying, retrieving, suspending procedures for the illegal state aid or abusively used set by the European Commission, infringements and sanctions application as provided by the law. In this context, by the Competitiveness Council President Order no.300/21, from December 2006 was adopted the Regulation for repealing regulations and instructions adopted by the Competitiveness Council in the filed of state aid, regulation that was applicable beginning with the 1st of January 2007.6 The authorities of local public administrations and other organisms that manage the state or the local community resources have certain obligations connected to the competitive politics:
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• Transmitting the information towards the Competitiveness Council on what concerns: the nature of the granted aids, the imposed conditions for granting them, their origin, their quantum and deduction for each beneficiary, duration; • Notify the Competitiveness Council of any intention of granting a new state aid or of modifying the existing aids; • Keeping specifically evidence for the state aids; • Supplying the Competitiveness Council with information connected with the financial relations between them and the public enterprises; • Setting by the local authorities of specialized departments in state aid, in order to apply the laws and rules concerning the state aid – technical specialty assistance may be requested from the Competitiveness Council in that matter. Unfortunately the local public authorities do not have problems in connection with state aid understanding but with the evidence and reporting, and considerable efforts were made in that sense but the Competitiveness Council and its Territorial Competitiveness Inspectorates from the counties, that supported by the Prefects’ Offices dealt with information dissemination within the seminaries organized in order to explain the way that activities are done.
References [1] Paralelism şi convergenţă în politicile contemporane în domeniul concurenţei – European Institute from Romania, no.19, November 2006. [2] Ileana Pascal, Ştefan Deaconu, Codru Vrabie, Niculae Fabian, Politica în domeniul concurenţei, Juridical Resources Center, Bucharest, 2002. [3] Jozsef Nandor Nemenyi, Daniel Diaconescu, O temă şi un deziderat de permanentă actualitate: ajutoare de stat mai puţine şi mai eficiente, Revista Profil Concurenţa – no.3, September 2006. [4] www.consiliulconcurentei.ro , Monthly Bulletins. [5] The European Accession Treaty of Romania, approved by Law no.157/24.05.2005. [6] The Monitoring reports of Romania, European Commission, 2004, 2005, 2006. [7] www.infoeuropa.ro [8] www.mie.ro
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BANKING AUDIT AND CONTROL – THE PREMISE OF EFFICIENCY IN THE KNOWLEDGE BASED ORGANIZATION
Ec. Stoica Stela
Leumi Bank Romania Ltd.
Abstract Any bank creates the control system with a view to help with reaching the set objectives. According to the entire legal framework and to international standards, the Board is responsible for the settlement and the maintenance of a proper and sufficient audit system’, while the top management is responsible concerning the supervision of the efficiency of the control system. In other words the management team of a bank has the task to conceive and apply a control system that has to provide the information necessary to the proper administration of a business. Thus, this control system is made of more elements that function in close connection to one another.
Keywords: set objectives, legal framework, audit system’, control system
Everything that is achieved in a private bank is done through its employees’ efforts. The bank is a firm like any others, an organization strongly influenced by its external environment thus subject to change. Change is a result of the adjustment to the environment, to the economic realities, to the globalization process which influences the banking world a lot especially after the integration into the European Union. Thus it has to be permanent. A bank that does not change is bound to dissolute. On the other hand, the ones that manage to
459 Knowledge Based Organization 2008 International Conference anticipate the market fluctuation, to adjust to the new requirements, to change the employees’ mentalities are the most likely to succeed in meeting their objectives. Peter Druker mentions two types of generalizations that apply to the majority of companies among which the banks have their place. It is these two generalizations that managers need to take into account to adapt their organization to the requirements of the future. They are the following:7 ¾ Neither the results nor the resources are situated inside the organization but outside it; ¾ Positive results are got by taking advantage of opportunities not by solving the incoming problems ¾ In order to get viable results you have to take the lead not to be among the best; ¾ Any leading position is short and transitory; ¾ Whatever exists gets old ¾ Whatever exists tends to be wrongly allocated; ¾ Concentration is the key to economic results’. In our opinion, the adaptation of a banking organization to the requirements of future cannot be made without creating a corporative culture that would lead an effective control of the institution. It is the top management’s duty to do it.
1.1 Banking audit and control – a feature of banking management All the researchers that approached the theory of company management and leadership aspects unanimously agree that one of the functions of management is evaluation and control. According to Nicolescu and Verboncu, the attribute of control- assessment consists of the ‘assembly of processes by which the performances of the company, of its subsystems and components are measured and compared with the objectives and the standards established initially, in order to exclude the malfunctions and to integrate positive results.8
7 Drucker, F. Peter – Strategic management, translation, Ed. Teora, Bucureşti, 2001, p. 10-18. 8 Nicolescu O. Verboncu I, Management, Ed.Economicǎ, Bucureşti, 1999, p.48. 460 Knowledge Based Organization 2008 International Conference
Thus after the setting of objectives, the organizing of the activity and the involvement of staff in achievement of objectives, comes the control-assessment function, through which the management identifies the digressions from the set objectives, analyzes their causes and recommends preventive or corrective measures. An attentive look reveals that this last function of management comes as a natural consequence of the functions that come before: anticipation, coordination, organization and involvement of staff. There are many opinions according to which control and audit are the responsibility of the employees from Control and Audit Authority. We do not expect to hear such an opinion from a model employee. And still there are such opinions, quite a lot, unfortunately. Every time we hear such a remark we cannot help thinking that such employees are exposed to the most serious risk as they do not identify themselves with change and its implications. Control and banking audit have suffered unprecedented mutations in the complex period we are facing. The banking audit and control is not only the responsibility of Control and Audit Authority and Internal Control but the one of management at all levels, including the managers both in the main organization and in its territorial profit branches. The banking control is no longer a solely financial process but it is integrated in all the aspects of daily activity in a bank. The exercise of the control role at all levels of management – operational, tactical, and top has become a paramount requirement for meeting the objectives set by the bank and they involve the following stages ¾ Measurement of performances. ¾ The comparison of prospected and achieved results. ¾ Identification of causes of malfunctions. ¾ Establishment of corrective measures for the identified malfunctions. In other words, after going through these stages, the managers receive information that helps them take decisions concerning the anticipation, organization, coordination and involvement of staff. Thus control and audit contribute to the meeting of the set objectives and to the settlement of new directions of activity. The 461 Knowledge Based Organization 2008 International Conference control and audit evaluate the results compared to the set objectives, avoiding thus the activities that would lead to the necessity of corrective measures-- decisions on the part of management. So control and audit identify and impose the correction of any malfunctions, it prevents digressions, thus regulating the meeting of the set objectives, but, in order to be efficient it has to be continuous. In our opinion, control and audit contribute to the integration of the bank in the market economy by a continuous managerial activity.
How can we change prejudices?
Undoubtedly, central management and the profit centers have the task to create a corporative culture that would admit and maintain an effective control. In order to have a well established control process mixed with the daily activities, one has to see if the staff of the bank has understood the control elements, the risk evaluation, the control activities, the information, communication, and the monitoring of the control process. In our opinion, a solution to avoid ‘behavioral problems’ connected with control and audit activities, would be the invitation of the bank’s staff to the setting of the goals, of the objectives that the incoming control targets and to the elaboration of the control system. Another solution would be an automatic audit or control made by IT programs/applications that are meant to exclude human risk in every activity undertaken inside the bank. All these would lead to the existence of a realistic system of control, not an oversized one with effects on the effectiveness and efficiency of its practice.
1.1 Control and audit –activities that need to be guided The banking audit and control activity is at any top manager’s hand. It is the top management who has to take decisions. As it is done inside a system, it needs to be guided. Thus managers need to use all the functions of management namely to anticipate, to train to control the implementation of measures in order to grant that the objectives of the bank will be met. 462 Knowledge Based Organization 2008 International Conference
Concerning the function of anticipation one should have in mind the following points: − the unitary banking audit and control plans that show the detailed objectives and the concrete course of action for reaching the objectives. They must show the foundation of each concrete action; − the unitary programs of banking audit and control that stipulate each activity involved in the meeting of objectives Concerning the organization of banking audit and control it has to be subordinated to the planned objectives. The efforts of the manager need to be targeted towards the definition of the role and position of the audit and control branch, towards the correct assignment of tasks and towards the creation of a decentralized decision making system. The third function of management, coordination, synchronize in space and time the chain of activities exercised in audit and control. Within this function there is a harmonization among parts, namely the self-regulation that is the result of proper communication at all levels. Concerning the function of involvement of staff, the management guides the audit and control activities while they are in progress in order to efficiently meet the objectives and fulfill the aims of the organization. Without guidance, the efficacy of the involvement of staff function diminishes, and this has a decisive impact on the other managerial functions, the anticipation, the organization, the coordination and control-assessment. Control as managerial function consists of: setting the objectives, involving the staff into the meeting of these objectives, controlling –a function through which the manager identifies the differences of the obtained results from the set objectives; analyzes the causes that have lead to these differences and decides on preventive or corrective measures. Thus, the audit and control connects all the other functions that cannot be fully carried out without audit and control feed-back.
1.3 Banking audit and control as system Any bank creates the control system with a view to help with reaching the set objectives.
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According to the entire legal framework and to international standards, the Board is responsible for the settlement and the maintenance of a proper and sufficient audit system’, while the top management is responsible concerning the supervision of the efficiency of the control system. In other words the management team of a bank has the task to conceive and apply a control system that has to provide the information necessary to the proper administration of a business. Thus, this control system is made of more elements that function in close connection to one another. These elements are not perceived as parts of the control but rather as current activities of different elements of the staff hierarchy, and this is not wrong. Control does not have to be separated of any other activity that is specific for each field or from the exercise of the responsibilities set by the systemic configuration and imposed by the corporative structure. The basis for a control system is embodied by a strong control environment (the acknowledgement of importance) The more familiar each employee is with the manner of control, the more prepared he or she is to use all the elements he or she had at hand. Recognizing the possible flaws of the control system might be, thus, an easy task. Once discovered, the flaws should be reported immediately to the management level in charge who needs to take measures to promptly rehabilitate the whole system. In our opinion, if the management of a bank is in charge of creating a control system that would limit the risks, in case of a weak control system , the responsibility is shared among all the staff . In our short paper we presented the importance of control/evaluation/ auditing, a function without which the banking system would be incomplete as this function comes as a conclusion, closing the circle of the banking activities. We concluded by mentioning the systemic character of control and audit; a system meant to help the meeting of the set objectives, but we cannot finish without quoting the opinion of a great specialist in this field according to whom all the functions of management are equally important and they need the integrated approach of
464 Knowledge Based Organization 2008 International Conference knowledge, approach that might be put into practice by three main ways3 : 1) the granting of an efficient and modern communicational and informational infrastructure 2) the creation of projects and applications based on basic managerial elements, where major performance may be attained in the company 3) the involvement of these managers who must have the necessary knowledge to use the communicational infrastructure. Any avoidance of this approach leads to the failure to meet the objectives set in efficiency conditions with repercussions on the performances of the organization in question.
9 Nicolescu O.(co-ordonator), Modern approach of the management and the economy of organization , Ed.Economicǎ, Bucureşti, 2003, p.57.
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INFLATION – A DECISIVE FACTOR OF MANAGEMENT POLICY OF NATIONAL BANK OF ROMANIA
Marin Camelia, Sima Izabela
’’Constantin Brâncoveanu’’ University, Pitesti, [email protected], [email protected]
Abstract In economics, inflation or price inflation is a rise in the general level of prices of goods and services in an economy over a period of time. Today the primary tool for controlling inflation is monetary policy. Most central banks are tasked with keeping inflation at a low level, normally to a target rate around 2% to 3% per annum, and within a targeted low inflation range, somewhere from about 2% to 6% per annum. Romania is placed 5th in the European annual inflation rate listing, after the annual advance of prices in September with 7.3%, Eurostat informs. Our country's inflation rate is 3.1 percentage points over the EU average inflation of 4.2%. There are a number of methods that have been suggested to control inflation.
Keywords: monetary policy, disinflation, aggregate demand
1. Introduction In economics, inflation or price inflation is a rise in the general level of prices of goods and services in an economy over a period of time. The term "inflation" once referred to increases in the money supply (monetary inflation); however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflation. Inflation can also be described as a decline in the real value of money—a loss of 466 Knowledge Based Organization 2008 International Conference purchasing power. When the general price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate, which is the percentage change in a price index over time. Inflation originally referred to the debasement of the currency. When gold was used as currency, gold coins could be collected by the government (e.g. the king or the ruler of the region), melted down, mixed with other metals such as silver, copper or lead, and reissued at the same nominal value. By diluting the gold with other metals, the government could increase the total number of coins issued without also needing to increase the amount of gold used to make them. When the cost of each coin is lowered in this way, the government profits from an increase in seigniorage. This practice would increase the money supply but at the same time lower the relative value of each coin. As the relative value of the coins decrease, consumers would need more coins to exchange for the same goods and services. These goods and services would experience a price increase as the value of each coin is reduced. By the nineteenth century, economists categorized three separate factors that cause a rise or fall in the price of goods: a change in the value or resource costs of the good, a change in the price of money which then was usually a fluctuation in metallic content in the currency, and currency depreciation resulting from an increased supply of currency relative to the quantity of redeemable metal backing the currency. Following the proliferation of private bank note currency printed during the American Civil War, the term "inflation" started to appear as a direct reference to the currency depreciation that occurred as the quantity of redeemable bank notes outstripped the quantity of metal available for their redemption. The term inflation then referred to the devaluation of the currency, and not to a rise in the price of goods.
2. Developments in inflation and its determinants In June 2008, the 12-month inflation rate stood at 8.61 percent, a level almost unchanged from 8.63 percent in March. This development validates the previous projections of the National Bank of Romania according to which the rise in 467 Knowledge Based Organization 2008 International Conference inflation that began in 2007 Q2 would come to a halt in 2008 Q2.While supply-side factors had diverging effects on price increases, aggregate demand pressure acted as a deterrent to disinflation, which accounts to a large extent for the CORE2 inflation rate rising further in June over March 2008. In 2008 Q2, disinflationary effects came mainly from the significant slowdown in the growth rate of administered prices and volatile prices of some food items such as vegetables, fruit and eggs. Opposite effects were exerted by the prices of processed food making up about 38 percent of the CORE2 inflation basket, which saw faster year-on-year rates of increase than in the previous quarter, reflecting the build-up of pressures on the agri- food market. Moreover, fuel prices rose at a considerably swifter pace as a result of surging oil prices on global markets. Unit labour cost kept rising January through May 2008 owing to labour market tensions, generating inflationary effects through both cost-push pressures and the contribution of increasing wages to excess demand. The persistence of cumulative effects of inflationary shocks during the past four quarters resulted in a steady worsening of inflation expectations, which further induced second-round effects on CORE2 inflation in the quarter under consideration. The strong acceleration of economic growth (up to 8.2 percent) in 2008 Q1 translated into significantly stronger excess demand pressures, thus contributing to higher CORE2 inflation in 2008 Q2. The key driver of the rapid GDP growth was the surge in both investment and final household consumption, underpinned by sizeable increases in household and corporate income and credit to the private sector, as well as by the substantial advance in public expenditures earlier this year. The widening share of imports in domestic demand caused an increase in the negative contribution of net external demand to GDP growth, despite an acceleration of export growth.
3. Monetary policy since the release of the previous Inflation Report
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After examining the most recent macroeconomic developments, the May inflation forecast and its related risks, the NBR Board decided to raise the monetary policy rate to 9.75 percent per annum in its meeting of 6 May 2008. Following this decision, signs of further deterioration in the short-term inflation outlook came especially from fast wage and non-government credit dynamics, oil price developments and the information regarding the anticipated increases in administered prices, for natural gas and electricity in particular, as well as in excise duties. The release of official figures on firstquarter growth confirmed that some of the risks mentioned in the previous Inflation Report, such as the additional increase and the persistence of excess demand pressures, had actually materialised. In response to these developments, the NBR Board decided in its meeting of 26 June 2008 to raise the monetary policy rate to 10 percent per annum. The decision was meant to maintain an appropriate restrictiveness of the monetary policy stance in order to avoid further worsening of inflation expectations and to contain demand-pull inflationary pressures. Throughout the period under review, the National Bank of Romania carried out a firm management of money market liquidity, thus maintaining the average interbank rate in the immediate vicinity of the monetary policy rate.
4. Inflation outlook The baseline scenario of the current projection places the 12- month inflation rate at 6.6 percent for end-2008, 0.6 percentage points above the figure published in the May 2008 Inflation Report. For end-2009, inflation is forecasted to stand 0.7 percentage points above the previously projected level (4.2 percent versus 3.5 percent).
Figure 1 : Vegetables, fruit and eggs and CPI
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Vegetables,fruit and eggs and CPI
25 20 15 10 5 0
2 1 -5 Q4 9Q2 08Q 08 0 09Q3 10Q 0 2008Q1 20 2008Q3 20 2009Q1 20 2 2009Q4 20 2010Q2 vegetables, fruit and eggs CPI
Source: NIS, NBR calculations
The inflation forecast was revised upwards due to adverse effects, compared to the previous projection, coming from stronger excess demand pressures, boosted by faster-than-expected GDP growth in 2008 Q1 and underpinned by the ongoing rapid expansion of public- sector wages and the planned pension hikes. Other adverse effects include less optimistic scenarios regarding administered and fuel prices and higher inflation expectations. These influences are only partly offset by more favourable projections of the dynamics of import prices and volatile prices of some food items. The successive monetary policy rate increases implemented since October 2007 led systematically to an adequate tightening of the real monetary conditions. This effect was partly mitigated by stronger inflation expectations against the background of some risks mentioned in the previous Inflation Reports becoming manifest, most notably the faster increase of both household disposable income and public spending in the first part of 2008. In turn, the monetary policy rate increases dampened the rise in inflation expectations. Starting with 2008 Q3, these expectations are projected to become anchored to a downward trajectory once the disinflation process resumes. Nevertheless, the resumption of disinflation is contingent upon the other components of the macroeconomic policy mix (fiscal and income policies) remaining within the coordinates envisaged in the baseline scenario. This will 470 Knowledge Based Organization 2008 International Conference allow a gradual increase in the restrictiveness of real monetary conditions, growing firmer in 2009, thereby facilitating the phasing- out of excess demand during the second half of 2009. The elimination of inflationary pressures induced by aggregate demand, along with the dissipation of second-round effects from previous inflation shocks, will help consolidate disinflation towards the end of the forecasting horizon.Compared to the previous forecasting rounds, the baseline scenario of the current projection is surrounded by increased uncertainties related to both the consistency of macroeconomic policies in the election run-up and the persistence of global market tensions. Major risks are generated by potential unfavourable developments that might entail, should they become manifest, upward deviations of inflation from its projected path. These include: ongoing wage rises in excess of productivity gains, lack of coordination of fiscal and income policies with monetary policy, renewed depreciation of the domestic currency due to shocks on global markets, and a further worsening of inflation expectations. Other important risks to the current projection include the uncertainties about the future movements in the oil price on external markets. The oil price has a substantial impact on aggregate price dynamics given the share of petroleum products in the CPI basket and the second-round effects generated by oil price changes, inflation expectations included. While the current projection assumes a global oil price of USD 140 per barrel, uncertainties regarding the economic growth in the USA and other OECD countries over the projection horizon may cause both-way deviations from the level envisaged by the projection. The consequences of largerthan-projected hikes in administered prices are noteworthy as well. Implementing a coherent mix of firm macroeconomic policies would eliminate the risk of policy slippages and could reduce the likelihood of some of the other risks materialising.
5. Monetary policy decision Given the updated forecast of the medium-term macroeconomic developments and the prevalence of upside risks to inflation, the NBR Board has decided to raise the monetary policy rate by 0.25 percentage point to 10.25 percent per annum and to continue to pursue 471 Knowledge Based Organization 2008 International Conference a firm management of money market liquidity via open-market operations. Moreover, with a view to consolidating the restrictiveness of broad monetary conditions, the NBR Board has decided to leave unchanged the current minimum reserve requirement ratios on both RON- and foreign currency-denominated liabilities of credit institutions. Against this background, the NBR Board reaffirmed its resolution to firmly gear monetary policy towards countering demand- pull inflationary pressures and anchoring inflation expectations, emphasising the need for enhanced support to monetary policy from the other components of the macroeconomic policy mix, as well as from structural reforms.
References [1] Albertini Jean. M., Les somages de l’economie nationale, Editions Economie et humanisme, Paris”, 1988. [2] Annual Report (2006), Royal Canadian Mint, p. 4. [3] Brnanke S. Ben, Woodforf Michel – Inflation forcests and monetary policy, NBRWorking Paper W 6157, 1997. [4] Brada J. C., Kutan A. M. – The end of moderate inflation in three transition economies?, Working Paper 99-003A, Federal Reserve Bank of St. Louis. [5] Bulkley, George (3 1981), Personal Savings and Anticipated Inflation, The Economic Journal 91 (361): pp. 124-135. [6] Encyclopedia Britannica, The cost-push theory. [7] Mankiw, p. 22-32, 2002. [8] Mankiw, pp. 81-107, 2002. [9] Michael Burda and Charles Wyplosz(1997), Macroeconomics: A European text, 2nd ed., p. 579 (Glossary). [10] Robert Barro and Vittorio Grilli (1994), European Macroeconomics, Ch. 8, p. 139. [11] Robert Hall and John Taylor (1986), Macroeconomics: Theory, Performance, and Policy, page 5. [12] http://www.bnr.ro/ [13] http://en.wikipedia.org/wiki/Inflation [14] http://www.investopedia.com/terms/i/inflation.asp [15] http://www.bls.gov/CPI/
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TREATMENTS AND OPTIONS REGARDING THE MANAGEMENT OF THE FINANCIAL PHENOMENON
Oprea Margareta
Academy of Economic Studies of Bucharest, [email protected]
Abstract In the complex process of founding and grant applying the financial decisions regardin the consumation process they use different methods to funds under conditions of risk, to value the capital in correlation with the capital market, to correlate with the post of the attracted capital and with the effects on the economic activity in general. The correct grant of value for the production process has a great influence on the future economic and financial performances of the company. That is why the financial manager has to do this in accordance with the requests of the financial repartition, with the behaviour of the elements of the structure of the company, with the interests of the development of the company, with the level of the efficiency indications. Choosing one of the motivational functions is up to the manager capacity to deal with the concrete situation of the Company, to the provisioning of the future situations and to the way he knows how to attract the employees and the employers in a participative leadership,in favour for the expansion of the company and for solving the conflicts inside and outside the company and satisfying the major interests.
Keywords : economics, productions, costs, value, potential
Because of the quantitative and qualitative changes that occurs as well in the internal environment as in the external environment, the management of the enterprise has passed from its mostly organizational form, to that which focuses mainly on the market
473 Knowledge Based Organization 2008 International Conference research, knowing the human universe in all regards and, last but not least, on the association when running a financial activity. Because of these changes, the financial projection of the enterprise becomes a real and necessary act of management. Its functions are amplified, going from the purely financial zone to the managerial and human side of the economic activity in the enterprise. Carrying out the function of authorizing the repartition presupposes to know the types of activities that are part of the consummation process in the enterprise, a detailed knowledge the way these activities are done, what factor causes their structure and ampleness, and what effects they have on the future functioning of the company in order to be able to establish the financial effects of these activities. The financial phenomenon provisioned goes through several assimilating steps to reach a level that is acceptable from the point of view of the financial exigencies and of the indicators of economic efficiency. Carrying out the consummation process presupposes a financial founding which is adopting a financial decision which attracts in the enterprise the financial funds which will allow the effective development of the activities of the type “consummation”. This function is done by projecting, adopting and carrying out financial decisions that aim to forming and developing the companies. In the complex process of founding and carrying out financial decisions regarding the consummation process are applied different methods of allocating funds in conditions of risk, of turning the capital into good account in correlation with the capital market, of correlating with the post of the attracted capital and with the effects on the general economic activity. The correct allocation of value for the production process has a great influence on the future economic and financial performances of the company. That is why the financial manager has to do that in accordance with the exigencies of the financial repartition, with the interest of the enterprise developing and especially with the level of the efficiency indicators. The choice of some of these functions depend on the manager’s capacity of interpreting the concrete situation of the company on the provision of the future situations and on the way he knows how to attract his employees and the owner of the company in a participative 474 Knowledge Based Organization 2008 International Conference leadership, favorable to amplifying the performances of the company, solving the conflicts inside and outside the company and satisfying the company interests. The dimensions of the company are: technical and economic, managerial, social, ecological and financial. 1. The technical and economic dimension is shows the unit as a result of the technical and economic progress that has occurred in the economy or has been imported from another country. This dimension conditions the consummation necessary to form a production structure as well as the quality and the ampleness of the production process. 2. Through the managerial dimension the enterprise is connected to the progress of the macro and micro economic methods that exist at a certain time and to the structure modifications and the exigencies of the forms of ownership in society. 3. The social dimension is important for the enterprise as it has to be under the influence of the forms of social nature, from its own employees as well as from the society as a whole. 4. The ecological dimension appears naturally, by the favorable effects the environment assures to the enterprise, by the negative effects of the processes that take place in every economic unit on nature and because necessary funds are requested to protect and restore the environment. 5. From the point of view of the financial dimension, the company seeks to become part of the quantitative and qualitative content of the national and international capital, credit and financial markets. The finances of the enterprise assure at the same time with the process of the repartition the financial management or, in other words, the efficient management of correct and profitable allocation of the resources. By allocating the resources, the financial activity has the possibility to favorably influence the whole mechanism of obtaining and administrating the value. The consummation and production processes in the enterprise are directly conditioned with the volume, the promptitude and the efficiency principles that accompany the financial allocations.
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The financial management has the permanent aim the functioning of the mechanism of obtaining and administrating the value by: - Understanding the whole mechanism, but also the intimate processes by which the potential that exists in the natural environment, in society and in economy, as substance, energy and information is turned into value and is conserved in products and services. - Firmly and efficiently administrating of the value obtained in order to distribute it to the beneficiaries from economy, society and the natural environment, thinking of the future evolution of the systems that participate at the mechanism of the value; - The correct and equitable intermediation between the economical, social and natural processes which are engaged in the mechanism of obtaining the value. An incorrect behavior can deregulate that mechanism as well as the whole natural and social mechanism of existence of the human species. Value represents an essential element, it is the fundament on which is built the science of economics et the economic mechanisms that insure the existence of mankind. The activities that are developed in the company, related to value, are: obtaining, dimensioning, distributing, circulation through money, emphasizing, control, growth by directly an indirectly administrating the processes involved in the mechanism of obtaining and administrating the value. We all know, at a certain extent, the way of functioning of a motor vehicle. For example, we know that the engine is the main component; without it, the whole car becomes useless. The most skilled people also know the engine contains important parts which allow transforming the potential energy of the fuel in movement (carburetor, dynamo, sparking plug, piston etc.). These parts are the engine of the engine. The engine of “the machine of the society” is the economic activity, and its fuel is the value obtained by means of a complex mechanism. The association is correct and, one may say, even obvious. Most of the activities that occur in society have an economic side. 476 Knowledge Based Organization 2008 International Conference
Like the vehicle that cannot accomplish its aim, for which it has been made – circulate – without propulsion, that is the engine, which functions to produce energy, society turns the energy of the engine into value, which helps society to go forward. The first theory according to which “value is given by the work done to obtain a good” approaches value from the quantitative point of view. According to this, the sum of all the consummations that have occurred to obtain a good should be included in the category of value. A second theory that states that “value is given by the usefulness of the obtained good” means a much more modern approach, showing the concept o value under a new, different light. Here, value takes the form of the usefulness of the obtained good, so it also means an qualitative aspect and, at the same time, it is nearer the concepts of the market economy where the price of a good depends very much on the demand and on the offer. Value is the object of distribution an the processes that contribute to obtain value are social, political, cultural, educational processes, processes of production, consummation, distribution, exchange, and physical, chemical and biological processes. The factors engaged in these processes are: the environment, the human society, the economy (the enterprise) and the laws that govern the mechanism of obtaining and administrating value are the law of the conservation of the matter and the law of entropy. The theories about value have contributed to explain the reality and to direct the practical activity for a certain period of time. Sooner or later, each of the two main theories was in conflict with reality, directly or by means of the economic activity that was based on it. The society, based on the principles regarding value, scored regresses and dangerous vibrations, which preceded violent or velvet revolutions when the principles of these theories no longer matched the continually changing reality. Both theories are responsible for the apparition and the development of the serious problems like: - the exhausting of the resources - the serious pollution of the Earth - the economic and social distortions of each and every society.
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The explanation of value through usefulness is a partial representation of the analysis of the exchange relationships only from the point of view of the consumer buyer. The explanation of value through work belonged to the period of the industrial revolution and was in a conflict with reality at the moment they did not take into consideration the influence of the other capital components which converge to create value. A theory that may correspond to the actual and future reality must: - acknowledge as an objective basis for all the processes engaged in obtaining and administrating value the most general laws of nature, the law of transformation and conservation of nature and the law of entropy; - use as a basis of value, as a physical support, the low entropy, as a degree of of organization of the three forms of existence of the matter: substance, energy, information. These elementary products of the matter contain different degrees of organization insured by the processes from the natural environment, society and economy. These degrees of organization or low entropy are our daily food when they correspond to the structure of the necessities of a living system! - extend the zone of the processes engaged in obtaining value from the economic processes acknowledged by the other theories (production, consummation) to a much larger system, which contains the processes of the natural environment, society and economy. In nature, nothing is lost, nothing is gained, everything is transformed. For the economic processes, for those from the natural environment or society, the exits are equal to the entries, the results being only transformations of the entries according to the law of entropy, if the transformations are done with losses, so the useful results are smaller than the entries. The potential is the level of organization of the primary components of the matter that make it attractive to be consumed by a living system. Starting from the fact that the theory value-work as well as the theory value-usefulness have shown their limits in time and created many perturbations for the economy, society and natural environment,
478 Knowledge Based Organization 2008 International Conference this new paradigm regarding value which, at a certain time, could have shown its limits because of its more and accelerated evolution. Nevertheless, for the time being it seems that this new theory shows under an absolutely new and maybe beyond imagination light the component of the environment with all its processes. It is certain that, with all the arguments in its favor, this new paradigm is much more realistic and complete than the other two that preceded it. As a result of this action of developing the economic activity and the system of that activity, a complex system was discovered which contains: the family, the micro-economy, the macro-economy, the world economy, the cosmo-economy (still incipient). For the financial information we use the relation of function, y=f(x). In a competitive economy, the level of returns from the turning to account the production will depend on the force with which the factors engaged in the mechanism of value, the producer, the consumer, the environment and the society act on the value market. The calculation of the information – financial results – is accompanied by actions of influencing the factors on which depend the incomes and the expenses. This way, all the factors involved in the process of production are responsible for the level of these results. The indicators regarding the costs are projected depending on the structure and the quantity of products that can be manufactured. The sales (the incomes) – depend on the quantity of products that can be offered and on the selling price. The consummation is a process that concerns the production, the founding, the remake the development or the reorganization of an enterprise which are forms of manifesting of this process in the economic unit. Each time there are specific economic actions, from investments to stocks forming, from the training of the staff to the satisfaction of certain of its social and cultural necessities, from scientific and technical research to projecting and recovering the natural environment. The result of the consummation process is the capacity to make services. The economic potential of the services types which results from the transformation is stored in the dimensions: quantitative, qualitative 479 Knowledge Based Organization 2008 International Conference and viability. If we consider the service a means of the economic activity is capable (for instance a combine) after it has been the beneficiary of a process of consummation (investment, repairing), then its quantitative dimension is given by its capacity to work in ha/day, the qualitative dimension is given by the productivity and exactness of the operations, and the viability dimension is given by the duration in time of that service at an acceptable qualitative level. The second product is the wastes. The entropic losses, the other side of the exits of the consummation process depend, as in the case of the production, on the action of the law of entropy and the quality of the actions of consummation. The system that is in a state of consummation can no longer objectively take out potential from the consumed products and conserve it, and if does the output is lower and lower. The prediction of the phenomenon of the financial distribution concerning the consummation process demanded by the activities of forming, remaking, reorganization or development of the corporal assets presupposes to determine the entire range of financial information by means of specific methods of the financial activity. The provisioned financial phenomenon must pass through several simulation steps in order to reach an acceptable level from the point of view of the financial exigencies (principles of conditioning the financial distribution : the correlation necessary / resources; necessary / output in t0 or tn) and of indicators of economic efficiency. The financial policy reflects the interests of he who practices them. The interests must be correlated with the interests of the owners, of the employees, of the state, of the economic and capital market, of the banks. The motivational functions are: give back the possible performances for the company, solving the conflicts and satisfying the interests of all those who take part in the economic processes as well as insuring the participative leadership. Choosing one of these depends on the capacity of the manager to interpret the concrete situation of the company, to predict the future situations and the way he can attract his employees and owners in a participative leadership. Management presupposes supervising activities, controlling the activity, sanctions and recovering losses as well as rewards for 480 Knowledge Based Organization 2008 International Conference diminishing dissipation, noticing trespasses, growing the quality. The lack of control leads, in most cases, to dissipations, to decreases of the quality, to losing the segment of the market, to raises of the price. The existence and the practice of the financialcontrolthrough budgets becomes more and more necessary. The economic activity mustbe corrected in the direction demanded by the financial activity and the exigencies of the budget. The most operative and penetrationg form of control through budgets is to discover and analyze the differences (the gap) between the provisioned results and the real results.
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EUROPEAN ENERGY INDEPENDENCE WITHIN THE KNOWLEDGE TRIANGLE
Pricopi Marius
“Lucian Blaga” University, Sibiu, [email protected]
Abstract For Europeans, energy security means energy independence. Treated by many scholars with great skepticism, the pipe dream of energy independence can be however achieved within the original framework set by the knowledge triangle of research, innovation and education. Research for energy efficiency, innovation in renewable energy sources and education for an energy aware society are the key areas in which reactive action has to be replaced with pragmatic, pro-active action. This article argues that European energy independence (a strict necessity for building a knowledge-based economy and society) cannot exist outside the knowledge triangle.
Keywords: energy independence, knowledge triangle
1. Introduction Within the extensive field of security studies, the area of energy security has recently acquired a major importance. The competition over depleting energy resources, the security of supplies from the Middle East and the growing pressures on supply from rapidly industrializing countries, the protection of pipelines from insurgent attacks, the petrodollars dependency of instable governments and the use of energy as a political weapon – all these issues have „earned” a safe place on top of the agendas of the major powers and international organizations. For the European Union also, energy security is a special concern. Europe is the world’s largest importer of oil and natural gas. Imports
482 Knowledge Based Organization 2008 International Conference account for about 50% of the energy consumption today, with most imports coming from the Gulf, Russia and North Africa [1]. In other words, for most of the Europeans, energy security means energy independence. The paper discusses the ways in which, in a possible knowledge- based economy (and society), energy independence can be achieved, respecting the framework of the knowledge triangle of research, innovation and education. Although the topic of energy independence has been widely debated throughout the current literature, the originality of this article derives from the novelty of the theoretical perspectives in which the issues are tackled.
2. The Pipe Dream of Energy Independence When speaking about energy independence, some scientists argue that it can best be achieved by reducing the use of fossil fuels (petroleum, coal, natural gas) and increasing the use of solar energy, wind energy, hydroelectric power, geothermal power or even ocean power. Other scholars believe that the focus should be set on reducing energy costs through conservation [2]. And from a different perspective, a third category of specialists state that, instead of achieving energy independence, another win-win situation would be energy interdependence between suppliers and customers [3]. Yet, no reasonable amount of conservation is enough to keep the economy going if energy supplies are cut off. And what happens if the suppliers start to use energy as a political weapon, or simply want to maximize their profits? We have to be aware that a longstanding reliability on the energy supplies of unstable countries, with poor energy infrastructure and insecure transportation systems will ultimately weaken certain European Union (EU) Member States, and divide and weaken the EU, as a whole.
3. An Innovative Solution: The Knowledge Triangle As a response to the rapid globalization of the economic environment and a necessary modernization of the European economy, the participant Heads of State at the Lisbon European Council (March 2000) agreed on an ambitious goal: to transform the European Union, by 2010, into the most competitive and dynamic 483 Knowledge Based Organization 2008 International Conference knowledge-based economy in the world. During the following Council meetings, a detailed strategy (known as the Lisbon Strategy, the Lisbon Agenda or the Lisbon Process) has been developed in order to reach the goal. After initially moderate results, the Lisbon Strategy was simplified and re-launched in 2005, with the release of the Kok Report. At the heart of achieving this goal lie three essential areas: education, research and innovation, originally linked within the knowledge triangle. Obviously, a strong dependence exists between the three sides of the triangle: excellence in research is impossible without quality in education, and research efforts are wasted if they do not lead to innovations [4]. The knowledge triangle is meant to create knowledge through research, to apply knowledge through innovation and to diffuse knowledge through education. At the core of the knowledge triangle there are the knowledge and innovation communities (KICs): teams that pool together the best European human and physical resources (from universities, research centers and companies) in order to perform research, education and innovation activities. A KIC is expected to live no less than 10-15 years [5], and its agenda dynamically evolves to match the changes that occur in the wider social and economical landscape. The KICs promote the production, dissemination and exploitation of new knowledge products and best practices, ensuring a constant focus on delivering usable outcomes [6]. The overall strategy of the KICs, the screening and evaluation of their work and the management of their budget is accomplished by the Governing Board – the high level body of the European Institute of Innovation and Technology1 (EIT). A response to the fragmentation of the European knowledge landscape, the EIT aims to become a flagship for excellence which, through the integration of all the three elements of the knowledge triangle (education, research and education), will unlock Europe’s prodigious potential.
1 Following a 2005 initiative of the European Commission’s President Emanuel Barroso, the Institute was established through Regulation (EC) No 294/2008, adopted on March 11, 2008 and published in the Official Journal on April 9, 2008. Budapest, Hungary, hosts the headquarters of the Institute. 484 Knowledge Based Organization 2008 International Conference
4. The Three Pillars of Energy Independence Energy independence will not be acquired simply by investing money; energy independence requires planning and a strategy, political will, experience, and, most important, it requires knowledge. Only by applying the knowledge triangle of research, innovation and education will the achievement of energy independence be accelerated. Within the knowledge triangle, European energy independence has to be built on three pillars (key areas): - Energy efficiency developed and improved with the help of research; - Renewable energy sources, discovered and exploited through innovation; - An energy aware society, through education. The first challenge to energy independence is using energy more wisely. Energy efficiency – consuming less energy to provide the same amount of useful work or services – is the easiest and quickest way to achieve energy independence, helping Europeans to reduce energy imports and pollution and at the same time mitigating the likelihood of energy shortages and the volatility of energy prices. Therefore, energy efficiency should be the priority measure of all energy policies. The intelligent use of resources leads to an energy efficient economy, with a massive potential growth. The EU could save at least 20% of its current energy use in buildings, transport and industry [7], with huge gains for businesses and consumers alike, and with the creation of hundreds of thousands of new jobs. A necessary step towards energy efficiency is to implement existing directives and legislation2. Yet the best way of increasing energy efficiency consists in the research and development of new technological improvements, combined with better management
2 Directive 2001/77/EC on Electricity Production from Renewable Sources; Directive 2002/91/EC on Energy Saving in Buildings; Directive 2003/30/EC on Promoting Biofuels; The White Paper on Energy Policy COM (95) 682; White Paper on Renewable Energy Sources and Action Plan COM (97) 599; Green Paper on Security of Energy Supply COM (2000) 769. 485 Knowledge Based Organization 2008 International Conference practices, and learning to put these technologies and practices to their best use in automobiles, homes, offices, factories, and farms. Renewable energy sources represent Europe’s energy future, and their development is a central aim of the European Commission’s energy policy [8]. Innovations in the field of renewable energy sources can significantly contribute to the enhancement of the European energy independence. Actually, this is the area in which innovations are most needed, because, at the present time, the cost of renewables remains higher than the cost of fossil fuels. In this respect, and in order to win the renewable energy battle, a series of European agencies and organizations have been created3. Also, in March 2007, EU Heads of State have agreed to set a binding target for renewable energy use at 20% of the EU’s total energy needs, by 2020; specific targets have been set for each and every Member State. Renewable energy is generated from natural sources, which are generally sustainable, in the sense that they cannot be depleted. At the same time, their use has a more friendly impact on the natural environment than the use of fossil fuels, because they do not contribute to the greenhouse effect and the global warming. According to the International Energy Agency [9], three generations of renewable energy technologies can be distinguished: 1) First generation technologies, which have already reached maturity (hydropower, biomass combustion, and geothermal energy); 2) Second generation technologies, which are undergoing rapid development (solar energy, wind power, modern forms of bio-energy); and 3) Third generation technologies, which are presently in developmental stages (concentrating solar power, ocean energy, improved geothermal and integrated bio-energy systems). Yet, the contribution of different renewable energy sources to the total energy supply remains limited. Only through innovation and creativity new ideas and new technologies can be implemented in the energy sector, thus diversifying the portfolio of the EU energy mix and reducing the dependence on foreign oil sources.
3 The European Renewable Energy Council, the European Renewable Energy Centers Agency, the European Renewable Energies Federation, the European Association for Renewable Energy, the European Forum for Renewable Energy Sources. 486 Knowledge Based Organization 2008 International Conference
The third pillar of the European energy independence has to be an informed, energy aware society, in which the free movement of knowledge becomes a reality. Only through constant, large scale education, people will be able to go beyond their traditional mindsets and start to think differently about their crucial role in achieving energy independence. For example, the two most important factors in consumers’ decisions about purchasing an energy efficient product are price and the life of the product [10]. But when energy prices are high, consumers tend to weigh energy efficiency more heavily. Unless consumers are informed about the price of energy, they may not have the incentive to select the most energy efficient product. At the same time, consumers do not receive timely signals about rising electricity costs in order to make adjustments to their energy use and efficiency. When consumers’ peak costs are averaged with off-peak costs, the higher cost of peak electricity supplies is masked. As a result, consumers may not recognize the benefits of investing in technologies that best target peak consumption. This incomplete information causes imperfections in the marketplace that hinder purchases of efficient technologies that would actually save families and businesses money. Instead, an informed, educated society will keep the pace with the new discoveries and scientific breakthroughs in the energy sector, sustaining, with every means possible, the long road to energy independence. The governments of the Member States should implement more national programs and public campaigns in order to inform, educate and enhance the awareness of not only the consumers, but of youths and children also, regarding the importance of energy efficiency, energy efficient products and the use of renewable energy sources. More academic specializations in energy studies will also help, because more specialists means more researchers, more new ideas, skills and innovative solutions to the problems facing the energy sector. These are only a few reasons for which education must be an integral part of an energy independent Europe.
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Conclusions Energy is the fuel of an economy, but a European expanding knowledge-based economy needs reliable, affordable and environment safe energy. In this respect, energy independence becomes a sine qua non necessity for a prosperous European knowledge-based economy and society. By using the model of the knowledge triangle (research, innovation and education), this article opens new theoretical perspectives on energy independence, regarded as a pre-condition for energy security. The intelligent use of resources (energy efficiency), sustainable energy (renewable energy sources) and informed consumers (an energy aware society) are key areas in which research, innovation and education must play a crucial role. But by reducing the reliance on foreign oil and natural gases and increasing the use of domestic energy sources, Europeans ought not to isolate themselves from the rest of the world. Energy independence is a challenge to which no single institution, organization or country can answer alone; it has to be accomplished through enhanced cooperation with all our partners and through a comprehensive global energy dialogue.
References [1] A Secure Europe in a Better World. European Security Strategy, available at: consilium.europa.eu/uedocs/cmsUpload/78367.pdf. [2] http://www.epa.gov/reg5rcra/wptdiv/p2pages/energy.pdf. [3] Daniel Yergin, Articles and essays published in Foreign Affairs Magazine, available at: [4] http://www.foreignaffairs.org/search/search?Sort=Relevance&ArticleAuth or=&ArticleType=&Full+Text=Daniel+Yergin&x=0&y=0. [5] Janez Potocnik, Progress and the Knowledge Triangle in South Eastern Europe, Speech held at the UNESCO Policy Forum on South Eastern Europe Higher Education, Science and Innovation, Budva, Montenegro, July, 2008. [6] Jan Figel, EIT: A New Model for the Knowledge Triangle, EIT Stakeholders Consultation Meetings, Brussels, Belgium, April, 2006. [7] European Institute of Innovation and Technology. Excellence for Innovation, available at: http://ec.europa.eu/eit/doc/eit_brochure_en.pdf. 488 Knowledge Based Organization 2008 International Conference
[8] Secure Energy Supply and Smart, Green Growth, available at: [9] http://www.pes.org/downloads/Energy_Congress_EN.pdf. [10] http://ec.europa.eu/energy/res/index_en.htm. [11] Renewable energy: R&D priorities, Paris, IEA, 2006. [12] National Energy Policy, Washington, D.C., U.S. Government Printing Office, 2001.
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INEQUITY OF GLOBALIZATION: RICH STATE, POOR STATE
Ţeican Mihail-Cornel
Abstract Present reality, dominated by the rise and fall of stock exchanges, multinational companies, G8, financial crashes and everybody’s will to reach a more than sufficient living standard, is materialized in the economic dimension of globalization. We want to raise a simple question: can the economic ascending and financial development of some state entities help to communicate and even to impose the rules and values of the latter, thus setting the trend of globalization? The inequity generated by globalization creates hierarchies: the rich and the poor, winners and losers. If the future looks optimistic for the rich, what is in store for the less lucky ones?
Keywords: stock exchanges, multinational companies, financial crashes
A few definitions Summarizing the articles published in different specific magazines we realize, without any surprise, that the term globalization is interacting with certain main fields of activity: culture, society, economy, politics, mass-media and security. The term “poor” will be used in this context meaning an economy that is not strong or sustainable so as to allow its government to cover all the social expenses at their top limit. There are many points of view on globalization as a concept, which define it as “an erosion (but not a dissolution) of the sovereignty of national states” (Almar Altvater), a political change, a
490 Knowledge Based Organization 2008 International Conference new-fashioned theme, a cultural advantage of states, a homogenization of energies and, why not, maybe a future unification of the world. The Canadian cultural critic Marshall McLuhan coined the theme of a technologically based “global village,” generated by social “acceleration at all levels of human organization [1].” John Tomlinson, Director of the Centre for Research in International Communication and Culture, Nottingham Trent University, UK, defines globalization simply as “complex connectivity, the expansion of social ties across the planet. As we travel more easily through space, interact with other across vast distances, receive information from near and far, our sense of who we are necessarily changes as well [2].” Dirk Messner and Franz Nuscheler consider globalization as “the greatest economic and social change since the Industrial Revolution [3].” Monetary International Fund: “Economic globalization is a historic process, as a result of innovations and technological progress [4].” It refers to the continuous increase of the integration of world economies, because of the financial and commercial flows. The term refers to population movements (labor force) and transferring know- how over the borders. In conclusion, we see globalization as a phenomenon in a continuous transformation, in which the economic dimension, when is affected by different speculative factors, can generate system failure or even state instability.
The Economic dimension of globalization The globalization phenomenon has three levels [5]: - technological globalization, which changed the classic economic theory, showing that production and commerce are based nowadays mainly on know-how, innovation, research and
1 Marshall McLuhan, Mass-media sau mediul invizibil, Nemira, 1997 2 John Tomlinson, Globalizarea şi cultura, Amacord, 2002 3 Paul Kennedy, Dirk Messner, Franz Nuscheler, Global Trends and Global Governance, Pluto Press, 2002 4 http://www.imf.org 5 Napoleon Pop, Globalizarea şi integrarea României în Uniunea Europeană, Revista Fundaţiei Colegiului Naţional de Apărare, nr. 1, 2002. 491 Knowledge Based Organization 2008 International Conference development, communications services and infrastructure and less on natural resources, industrial and heavy machines, - politic globalization, which represents the hegemony of neoliberal ideology where the market economy and Western democratic model have a strong word in the internal decisions of a country, - economic globalization, which means internationalization of commerce, production and consumption. Electronic transactions, multinational companies’ development and forming of strategic alliances transcend borders. In the last 20 years, at the economic level some structural changes have taken place, creating communication and economic trends with spontaneous effects, hardly predictable and difficult to monitor and manage through the current national and international institutions, sometimes powerless. A current example is the 2008 financial crisis, following the US real-estate speculation, now being managed with a huge world-wide financial effort. A first tendency is the global communication revolution [6]. Its origins can be traced back in the late `60s, when the first satellites were launched, making global communication possible. The extremely fast development of communications and the emergence of the Internet defined Marshall McLuhan “global village”. The second tendency is the so-called weightless economy, which transforms the social dimension, with respect to people’s life and work environment. Nowadays, financial markets represent the peak of this kind of economy with an unbelievable impact. Sunita Narain, director of the India-based Centre for Science and Environment since 1982 considers that wealthy states cannot be forced to comply with the decisions other countries regard as proper [7]. An interesting idea, since it is considered that the decisions are taken at the highest level, i.e. the economically developed states.
6 Anthony Gides, Third Renewal of Social Democraty; Will Hutton, The State We’re In şi The State to Com (vezi pe larg un dialog între cei doi politologi în „Secolul 21 Globalizare şi identitate”, editată de Uniunea Scriitorilor din România şi Fundaţia Culturală Secolul 21, nr. 7-9/2001, p.30-43). 7 Sunita Narain, Globalization for the Rich, The Business Standard, August 17, 2006 492 Knowledge Based Organization 2008 International Conference
The Group of Eight (G8) is an international forum of the governments of the following economically, technologically and military developed states: Canada, France, Germany, Italy, Japan, Russia, Great Britain and the USA. Together they represent approximately 14% of the world population and 60% of the global GDP. They also spend 72% on armies and four of them, France, Russia, Great Britain and the USA own more than 95% of nuclear weapons. States like China and India, as emerging powers, are fighting to get at least an equal place with these states, in military and economic fields [8]. Globalization brings benefits for all, but the compensation law requires them to give something back or to make a change. China discovered that it cannot support a huge centralized system, where every process and operation is planned by an omnipotent and omniscient entity and had to open its frontiers to capitalism. This allowed European and US companies “to invade” it, until a certain point, to follow an old expression: everything for profit; profit that was later invested in infrastructure and in defense. Money also brought one thing, which the Chinese leaders anticipated but could not imagine it would reach this level: freedom of speech, naturally attached to free trading, which created a class of citizens willing to learn, to change ideas, to promote their own rights and not the ones of the state. The economic dimension is defined by three elements: capital movements, commerce and force labor migration [9]. Capital movements: we can associate globalization with the increase of capital flows, which have been lately directed towards the developing countries. At the same time, the official aid and assistance flows have been significantly reduced since the beginning of the `90 and the structure of private capital movements has also met several modifications. Commerce: developing countries have increased their participation in the international trade, but there are still some discrepancies. New industrialized countries in Asia, such as China or
8 http://www.g8.gov.uk 9 http://www.dadalos.org/globalisierung_rom 493 Knowledge Based Organization 2008 International Conference
India, have recorded positive economic evolutions while Africa, on the whole, has followed a negative trend. Movement of force labor: in the past 10 years the labor force has moved from a country to another, first as a result of identifying new work opportunities and hope for a better living. This also led to the creation of a great potential of transferring know-how to the developing countries.
Inequity of globalization and anti-globalization Globalization does not mean poverty. Money circulates fast in the international banking system. This does not imply that money is pick pocketed. Globalization does not necessarily bring messages like: “Please give us all your money!” Indian economist and former World Bank staffer Surjit S. Bhalla said that the last 20 years have been „the golden age” when poverty has fallen at the fastest rate in history [10]. Average annual growth in developing countries has been almost double than of the industrialized world - 3.1% vs. 1.6%. For each 10% rise in consumption by the non- poor, consumption by poor people rose 18%. In the author’s opinion, global inequity has also fallen sharply. By 2000, global inequality had reached its lowest level in 50 years. By the end of this decade it is likely to be the same as that of a century ago. The big gains in reduction of poverty have come in China and India, because they are the most populous countries. Two huge countries are developing with two different policies. India has pursued a democratic path, even if this looks a little slow. China has followed an authoritarian model, with the acceleration pedal pushed to the floor. In the end, they have both moved toward more market-based economies, with some results – the author says. Chris Giles said that by viewing globalization as an overwhelmingly negative force, citizens of rich countries are looking to governments to cushion the blows they perceive have come from the liberalization of their economies to trade with emerging countries
10 Surjit S. Bhalla, Imagine There's No Country: Poverty, Inequality and Growth in the Era of Globalization, Institute for International Economics, 2002 494 Knowledge Based Organization 2008 International Conference
[11]. In response to fears of globalization and rising inequality, the public in all the rich countries - the US, Germany, UK, France, Italy and Spain - want their governments to increase taxation on those with the highest incomes. Globalization is unequal, generating hierarchies: it reflects existent models of inequity and also generates new models of inclusion and exclusion, new winners and losers. In the developing countries there are powerful opinion trends that profitable companies should have supplementary taxation. We may say, at a first glance, that inequity generated by globalization can as well lead to anti-globalization. First, some anti- globalization definitions: Longman Dictionary: anti-globalization is „a belief shared by various political groups that people must oppose globalization (the process of making something such as a business operate in different countries around the world) because of bad effects it has on people, especially in developing countries, and because of the damage it does to the environment [12].” Mathew Humphrey: “an umbrella term invoking a common element of opposition to globalization amongst a diverse range of protest movements. Anti-globalization brings together campaigns about labor conditions (including child labor and slave labor), environmental destruction, bio-hazards, animal rights, social justice, third-world development and debt, and politically oppressive regimes [13].” Anti-globalization is a designation of an “opposition to globalization”. It is a political stance, in line with socialist, public interest, anti-corporate, and anti-imperialist values. The critics identified as anti-globalization militants are bringing the following arguments: 1) Globalization tries to raise a wall between the neoliberal Euro-Atlantic system and the rest of the world and he who remains outside the system (that means it cannot or it won’t integrate) will lack
11 Chris Giles, New Poll: Globalization Backlash in Rich Nations, The Financial Times, October 26, 2007 12 http://www.ldoceonline.com 13 http://www.answers.com 495 Knowledge Based Organization 2008 International Conference the political legitimacy and moral authority for integration. That state will be refused access to the welfare (re)production mechanisms. 2) If is plays the game and manages to integrate, the poor state is welcomed on the “international community” stage. First its territory is colonized, money is lent to it and it will receive invitations as an incentive for equal treatment. 3) If it does not accept integration, the poor state will lose on all plans. Its economy will crush in anachronism and the international mass-media will demonize it in order to justify its isolation. 4) Although it looks like a “human family” rhetoric, the globalized world borrows the modern metropolitan model: downtown are the institutions, businesses and elites; in the suburbs – some anonymous people. A poll issued by Gallup International [14] in July-September 2006, in 64 countries all over the world, brings some interesting results: 38 percent of the world considers globalization good for their country, 15 percent believe it is bad and 31 percent say it is neither good nor bad. Overall, 58 percent of those surveyed think that the rich benefit more. This feeling is especially strong in Western Europe (76%) and weakest in Eastern and Central Europe (40%). Africa is where respondents are most likely to say globalization is a “good thing” for their country (71%). Only nine percent say it is bad and 11 percent say neither. Nonetheless, a majority of Africans (56%) say globalization helps the rich more than the poor. About half of those polled in Asia and the Pacific look favorably on globalization, according to the Gallup International survey, with 52 saying it is good, 5 percent bad and 25 percent neither. Latin Americans are divided on globalization: 35 percent say it is good, 15 percent call it bad, and 35 percent think it is neither good nor bad. This poll says that the majority of the people consider the rich will benefit from globalization, while the poor will get only the remains. Inequity must be defined and measured so that comparisons can be made between rich and poor countries. Once the causes are
14 Gallup International, International Perspectives on Globalization, poll published in Voice of the People, 2007, also available at http://www.globalenvision.org 496 Knowledge Based Organization 2008 International Conference determined, the effects of globalization can be evaluated and be measured. The World Bank defines inequality as the disparity of income and standard of living among nations and their citizens [15]. To compare inequality among nations, incomes and living standards of their citizens should be reviewed. M. Stephen Lucas considers that when the rich nations get richer it is because stable governments and efficient infrastructure are at work.16 Many poor nations fail because the state fails. It is a fact that rich nations have implemented policies and a capitalist approach to distribution of goods and services propagating long-term growth. Inequality will exist because of these policies, and not because they oppress other nations. At a first glance we are tempted to say that inequity of globalization brings anti-globalization. This means that underdeveloped countries should ally and fight against this phenomenon. But, if we analyze the facts of the past years we will see that the anti-globalization militants who protest especially at the G8 summits come from developed countries. A paradox we might say. Precisely the people who benefit from globalization are its critics. Anti-globalization is just an opposite phenomenon of globalization, while inequality created by globalization is just a negative effect.
Conclusions It is not our intention to end with a simple conclusion, such as: globalization is good or not. The effects are both positive and negative and are felt world-wide. The targets of globalization are clear and cannot be denied: progress, evolution, prosperity. It is the means, through which these targets are reached, that is criticized by the anti- globalization militants. Rich states impose their economic policies sometimes using political and military force. The poor states are divided in two sides:
15 www.worldbank.org 16 M. Stephen Lucas, Does Globalization Cause Inequity Among Rich and Poor Nations?, 2007, also available at http://mises.org
497 Knowledge Based Organization 2008 International Conference states which support the phenomenon, willing to achieve prosperity and security, and the states which oppose it, overtly or indirectly. Globalization is neither good, nor bad. It is just a new-fashioned trend which has proved that it can bring benefits, but not for everybody. Critics see only the negative parts, supporters see only the advantages. At this hour there is no objective approach to teach us to rightly use this phenomenon, for everybody to benefit from it. It is like a panacea which is said to cure every disease: for some it is a medicine, for others – poison. The processes of globalization create both rich and poor, winners and losers. Rich states will never give up their privileged positions: their citizens won’t allow them to. Poor states will try, as much as possible, to catch up with them: their citizens require that. The economic, technologic and civilization gap seems insurmountable. The only advantage is that those left behind do not have to follow the entire path, they may as well use the technological shortcuts the others had found, but the costs are the only obstacles left. The future? We don`t know how it looks. For the rich states it looks bleak, as we can see in today’s perspective: money can be lost in a week, following one financial crisis. For the poor states the trend is equally dark: the money coming from the rich states is lost. The dilemma is the same for both parties: they will be hit, without any discrimination, by the globalization effects. This is not inequity!
References [1] Marshall McLuhan, Mass-media sau mediul invizibil, Nemira, 1997. [2] John Tomlinson, Globalizarea şi cultura, Amacord, 2002. [3] Paul Kennedy, Dirk Messner, Franz Nuscheler, Global Trends and Global Governance, Pluto Press, 2002. [4] http://www.imf.org [5] Napoleon Pop, Globalizarea şi integrarea României în Uniunea Europeană, Revista Fundaţiei Colegiului Naţional de Apărare, nr. 1, 2002. [6] Anthony Gides, Third Renewal of Social Democraty; Will Hutton, The State We’re In şi The State to Com (vezi pe larg un dialog între cei doi politologi în „Secolul 21 Globalizare şi identitate”, editată de Uniunea Scriitorilor din România şi Fundaţia Culturală Secolul 21, p.30-43), nr. 7- 9/2001.
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[7] Sunita Narain, Globalization for the Rich, The Business Standard, August 17, 2006. [8] http://www.g8.gov.uk [9] http://www.dadalos.org/globalisierung_rom [10] Surjit S. Bhalla, Imagine There's No Country: Poverty, Inequality and Growth in the Era of Globalization, Institute for International Economics, 2002. [11] Chris Giles, New Poll: Globalization Backlash in Rich Nations, The Financial Times, October 26, 2007. [12] http://www.ldoceonline.com [13] http://www.answers.com [14] Gallup International, International Perspectives on Globalization, poll published in Voice of the People, 2007, also available at http://www.globalenvision.org [15] www.worldbank.org [16] M. Stephen Lucas, Does Globalization Cause Inequity Among Rich and Poor Nations?, 2007, also available at http://mises.org.
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COMPARATIVE STUDY ON THE PROFIT AND INCOME TAXATION OF SMALL ENTERPRISES
Paculea Ion Marian
The Exchequer of Sibiu, [email protected]
Abstract The alternative of classic taxation of the profit for small enterprises is, by the cumulative fulfillment of some criteria established by the law, the taxation of their revenues. Taking into account a number of relevant elements, but irrespective of certain features specific to identify these two types of taxes, could determine the optimal threshold at which one of the two methods of taxation is more costly or more advantageous for the entrepreneurial, both of a financial and methodological point of view and consequently a financial resource of income for the state budget.
Keywords: classic taxation, small enterprises, optimal threshold
The Romanian legislature intention to regulate a new type of tax or a new system of taxation for a certain category of businesses (small or micro) was materialized by including in the tax system the tax on the income of micro enterprises. It was tried and succeeded in a good measure to create a modern tax system, introduced as well as a measure of fiscal relaxation leading to the development of this sector of the small enterprises with positive effect on revenues to the state budget and as a measure to reduce the tax dodger phenomenon.
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The definition given by the Romanian legislature to micro enterprise was often modified by conditioning in the fulfillment of certain conditions on December 31 of the previous fiscal year 1: • achieves revenues other than those of consulting and management, in proportion of over 50% of the total income; • has from 1 to 9 employees inclusively; • has achieved revenues that have not exceeded the equivalent in lei of 100,000 euros; • the social capital of the legal person is held by persons other than the State, local authorities and public institutions." Can not choose the income tax system of the micro enterprises which: a) are engaged in banking; b) are engaged in insurance and reinsurance, capital market, excepting the legal persons engaged in intermediation in these areas; c) are engaged in gambling, sports betting and casino; d) their social capital is owned by a shareholder or juridical partner with more than 250 employees. This taxation system is one alternative to tax profit, but optional, only from one direction. Thus, at present, there are two ways of covering the income tax for micro enterprises, both by choice: (1) at setting up (from the first fiscal year), if they meet certain conditions of the above mentioned and (2), after the setting up, since one of the following fiscal applying tax, if the micro enterprise was not taxable income on micro enterprises and if it meets the cumulative conditions to be included in the micro enterprise category. So, not at any time a legal entity of micro enterprise nature can cross from the system of taxation of profits to that of the income and vice versa. Is not negligible either that if the micro enterprise records a loss, and its option in the reference year for paying tax on income, then you will pay this income tax applied to the incomes which include in the tax base, covered by the fiscal code, and if the option for the reference
1 Law no. 571/2003 on the fiscal code, with subsequent amendments, Title IV - Tax on income of micro enterprises. 501 Knowledge Based Organization 2008 International Conference year is that the payment of tax profit, it will be null, that loss will be recovered during next fiscal periods. Also, although the calculation, highlighting and administration the tax on the income of micro enterprises is considerably simplified compared with the classical system of tax profit payers, the main aim of the law might be different of that of taxpayer trader, this will finally opt for one that is most favorable, depending on the viability of the business. However, most businesses remained tributary to old system of taxation (profit), either as a result of the failure to apply the new tax system or as a result of non-exercise option for this type of taxation, even if the criteria for employment have been met, or as a result of the inability of new options, not allowed by the law. The present study aims mainly to determine which of the two tax systems (profit or income) is more advantageous to be applied from the private developer’s point of view, which would be the best option possible for him to legally pay a smaller amount to the state budget. On this purpose, they chose a series of economic and financial indicators relevant to determine the optimal threshold (the yield or profit rate)2, in which tax rate is indifferent or in other words, the rate of tax or to / from the partial tax system, and this is favorable / unfavorable for the company. Also, were considered two ways of calculating it, one more simplified, the other more complex depending on the option of entrepreneurship and financial results obtained. To simplify it, it was taken into consideration that incomes which include tax on tax revenues are exclusively those which constitute the turnover, and therefore further studying, the concept of tax revenue will be replaced by that of tax turnover. Although this study does not represent a perfection having in view the multitude of factors that contribute to the establishment of each type of tax (which was abstract), one of the basic criteria that have been taken into account when determining the optimal threshold was determining the gross profit, as percentage in the turnover. It was used in the calculations the overall tax rate (16% for profits tax, it is maintaining during the entire period where the share
2 Calculated as proportion between gross profit and turnover 502 Knowledge Based Organization 2008 International Conference of the income tax of micro enterprises was modified) and (1.5% and 3% income tax for micro enterprises, even if the tax rate used in 2008 is of 2.5%, the 3% is valid for 2009). It was considered a tax rate of 16% of dividends, being used in the calculation of net dividends distributed to individuals, making abstraction of the taxation of dividends distributed between legal entities, in which case the tax rate varies depending on several features (the retention period, the level of shareholding, the nature of capital, etc). Proving the solutions to the problems mentioned above is based on equal amounts owed to the state budget determined in the two tax systems, namely: tax profit = tax revenue It will be considered two cases, in each case are using a specific formula. Case no. 1 CA x Rp x Rip = CA x Riv where: CA – turnover Rp – profit rate Rip – profit tax rate On the basis of equality elements as above can be determined the Rp. In case of a quota in corporate tax of 16% and 1.5% of income, without taking into account other factors, the equality occurs at a rate of profit (Rp) of 9.4%. However, a doubling in the rate of taxation on income by maintaining the conditions above, the rate of profit will be at 18.8%. It's easy to understand that achieving a profit rate lower than those mentioned above is in favor of undertaking only if it owes income tax and no income.
Case no. 2 CA x Rp x Rip + (CA x Rp – CA x Rp x Rip) x Rid = CA x Riv + CA x Rp x Rid Where: CA – turnover Rp – profit rate Rip – tax profit rate Rid – dividends tax rate
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By substituting the known items of the above mentioned equations is found that in the event of quotas in corporate tax of 16% and income by 1.5%, by taking into account the rate of taxation on dividends, equality occurs at a rate of profit (Rp) of 11.2%. However, a doubling in the rate of taxation on income to maintain the above conditions, the threshold of profitability increased and will be achieved only if the profit rate will be at 22.4%. For a more accurate picture of the threshold of profitability calculated in both cases, depending on certain circumstances, it was included in the table below a summary of the mentioned findings.
Table no. 1 Level of the threshold of profitability depending on certain circumstances Taxation quota % The threshold of Profit Turnover Dividends profitability % 16 1,5 0 9,4 16 3,0 0 18,8 16 1,5 16 11,2 16 3,0 16 22,3 A comparison of the absolute level of the obligations of tax on profit, turnover, total dividends and the tax liability due to the state budget, depending on the situation as well as the way of calculating them, is presented in the tables below.
Table no. 2 The calculation of fiscal obligations of tax on profit and dividends Total Quot Profitabilit Gross Net Quota of Dividends fiscal Turnove a of Profit tax y rate profit - profit dividend tax obligati r -lei- profit - lei - P/CA % lei - lei - s tax % -lei - ons tax - lei - 3 = 1 x 5 = 3 x 6 = 3- 9 = 5 1 2 2 4 4 5 7 8 = 6 x 7 + 8 1.000 10 100 16 16 84 16 13,4 29,4 1.000 20 200 16 32 168 16 26,9 58,9 1.000 30 300 16 48 252 16 40,3 88,3 1.000 40 400 16 64 336 16 53,8 117,8 1.000 50 500 16 80 420 16 67,2 147,2 1.000 60 600 16 96 504 16 80,6 176,6 1.000 70 700 16 112 588 16 94,1 206,1 1.000 80 800 16 128 672 16 107,5 235,5
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Tabel no. 3 The calculation of fiscal obligations of tax on turnover and dividends
The Total fiscal debts calculation of micro Income tax Income tax Profitability Gross enterprises Dividends Dividends Turnover + + rate profit income taxation tax - lei - dividends dividends P/CA % - lei - - lei - quota % - lei - Taxation tax tax quota % – lei - – lei - 1,5 3 1 2 3 = 1 x 2 4 5 6 7 = 3 x 6 8 = 4 + 7 9 = 5 + 7 1.000 10 100 15 30 16 16 31 46 1.000 20 200 15 30 16 32 47 62 1.000 30 300 15 30 16 48 63 78 1.000 40 400 15 30 16 64 79 94 1.000 50 500 15 30 16 80 95 110 1.000 60 600 15 30 16 96 111 126 1.000 70 700 15 30 16 112 127 142 1.000 80 800 12 30 16 128 143 158
By correlating the data entered in the table no. 1 with those listed in the tables no. 2 and 3, based on equations presented above, can be measured both relatively and absolutely the impact of taxation on micro enterprise. Even if the enterprise in question is situated above the minimum threshold of profitability mentioned above it might still prefer the implementation of turnover tax, at least in terms of administrative cost much less than the tax profit. In addition to these, the developer’s option has as a basis also the plans for the future, all pecuniary calculated. Thus, if he has in view the stage of investments non followed in parallel and in the near future, by sale, certainly its option directs to the taxation of profits (most likely, depending on the amount of investment, the recovery of loss) to the prejudice of income tax. On the contrary, if the micro enterprise is service provider and the costs recorded with work are reduced, certainly the option will be that of tax revenues. All these will be made by respecting the legal framework mentioned above. Although we can notice an increase from year to year with a 0.5% share of the income tax quota for the micro enterprise, the alternative of the tax is still a solution that the states “gives” to the entrepreneurs, by promoting the principle of broadening the tax base and collecting less revenue but from more persons. Certainly, the costs are lower in comparison with the fight against tax evasion mainly due to high taxation. 505 Knowledge Based Organization 2008 International Conference
ACCOUNTING MANAGEMENT FOR FOREIGN TRADE
Stancu Franca
’’Tibiscus’’ University, Timişoara, [email protected]
Abstract The accounting system for the companies with foreign trade activity represents the ensemble of principles, norms, rules, instruments, procedures and techniques specific for providing the necessary information for their management but also to the users. The management accounting has the role to open the black box, which represents the conversion process of the resources consumed in results, the process being detailed on centers of responsibility and on products.
Keyword: administration, bookkeeper, expense
The accounting management serves to the administrators from within the company, who decided to transform the resources that were entrusted to them from the exterior to be administrated and to make the surplus that ensures the growth. In this sense, the administrators will act directly on the transformation processes of resources in result. The administration accounting addresses the managers of companies, becoming an instrument for modeling the enterprise. The administration accounting completes, by the economical – managerial dimension, the legal-accounting dimension of the financial accounting (in which the fiscal rules are not independent from the accounting rules). In conclusion, the administration accounting has as finality supplying information capable to facilitate decision-making, the administration accounting represents an essential instrument in piloting the enterprise, following the accounting information
506 Knowledge Based Organization 2008 International Conference integration in the management system, where it will serve to the orientation of the behavior of the persons responsible for allocating resources. So, the term of Anglo-Saxon influence “management accounting” –fully justifies the purpose and role of management accounting. The organization of accounting management is at the discretion of each patrimonial unit, according to the specific nature of the activities and of its own requirements. Accounting management is oriented primarily to track the costs of production and to compute its costs. Scope of accounting management is oriented to calculate the cost of production of manufactured goods, works performed and services provided, including undergoing production, for calculating the cost of goods sold, as well as for recording operations regarding collecting expenses according to destination, respectively per activities, sections , stages of manufacture, etc., and the settlement of production. Accounting management also uses income accounts as well as appropriate analytical results, according to the option of each enterprise. The object of accounting management is more comprehensive, identifying itself with: ¾ analytical stock management; ¾ calculating the cost of products, services, activities and functions; ¾ determining analytical results by comparing the cost to the sale price; ¾ forecast expenditures and revenues by drawing up the internal network of budgets; ¾ control costs and budgets by means of deviations 181. According to the nature of expenditures and revenues to which it refers, in the object of management accounting are included only the expenses and revenues from operation. Therefore, the accounting management has also been called for a long time analytical exploitation accounting. Trading companies with activities of foreign trade, perform activities such as: export of finished products resulting from own 507 Knowledge Based Organization 2008 International Conference manufacturing process or of goods bought from the domestic market; importing raw materials necessary for the normal conduct of the operation process or the goods they sell on the domestic market; providing international services; activities of international economic cooperation in various fields; combines the operations of foreign trade and international cooperation with various internal activities of production, agriculture, providing services, trade, etc. We can say that accounting management can be organized in several ways within the companies in this branch of the national economy. Circumscribing the issue to the specialized companies that are running combined export and import operations, the subject of management accounting in international economic affairs is particularized as follows: - costs calculation: covers the cost of manufactured/purchased stock, of services provided and executed works as well as the administration and management activities; - determination of incomes: have as source the trading of stocks, performance of works and providing of services for the negotiated prices, respectively tariffs; - determining analytical results: takes the specific form of raw results from the exploitation and is determined by comparing the delimited cost on one of the abovementioned structures with the selling price; - forecasting spending and incomes: drawing up internal network of revenue and expenditure and, moreover, control costs and budgets by means of deviations. In order to be able to manage the activity, managers need the existence of tailored indicators, calculated based on developments of the existing accounting systems that are in place in enterprises. They must know the volume and value of the stocks that transit their enterprise, their rates of rotation, the cost as well as the margin and that they produce and ensure their success. Indicators such as production cost, the cost of goods sold and gross margin, allow evaluation of performance of the enterprise and, implicitly, those of managers hierarchically inferior. Treatment costs in accounting management for calculation of costs.
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In any branch and sector of activity, documents underlying the registration operations in the financial accounts are used also for record in management accounting, after being processed in accordance with its requirements. In these circumstances, specific processing is necessary because the costs, revenues and results are grouped differently in the accounts management, to the financial accounts. The financial accounting groups the expenses according to the nature of the activity in operating expenses, financial and extraordinary, and in each activity, on types of expenses regardless of their destination, respectively within each activity, on kinds of income regardless of their source. So, all expenses regarding exported goods, imported or subject to the combined operations of foreign trade, are recorded in a single account 607 "Expenditure on goods", while revenues from the sale of goods on the domestic or foreign market, are recorded in 707 "Revenue from the sale of goods". The result for the year is calculated globally on activities (operating, financial, extraordinary) and then by summing up for the entire enterprise. In management accounting, expenses are classified by destination, being grouped into articles of computation. Taking as criterion, the functions of an enterprise, the following classification is made: - for the supply function: the costs of buying according to which is determined the value of consumption of raw materials and materials; - for the production: the costs of processing or manufacturing, respectively wages, special costs for manufacturing , costs related to the maintenance and operation of machinery; - for the organization: the cost of general management of administration; - for the sales: cost of sales. Sharing expenses in corporeal expenses, suppletive and non- corporeal was made in order to define the ratio between expenses and costs both in financial accounting as well as in accounting. Expenses that may be included are the expenses recorded in the financial accounting and are incorporated in costs. This includes 509 Knowledge Based Organization 2008 International Conference operating costs, which have a normal character in relation to the performed activity. Suppletive expenses are those expenses included into costs who do not appear in the financial accounts for legal and tax reasons (included here: conventional remuneration of own capitals, remuneration of individual developer). Non incorporable expenses are expenses removed from the calculation cost because they do not really correspond to normal operating conditions and achieving the object of activity, and do not have a report directly to the current operation (amortization of the expenses with founding, expenses related to provisions for litigations and other risks, expenses with tax for profit, losses from claims, extraordinary expenses, etc.). In conclusion in order to determine the exact cost will be used only expenses that can be incorporated into the cost. After the manner of inclusion in the cost of products, goods, services or works costs are direct costs and indirect costs. Direct costs are those costs that are identified from time of clearing consumptions, direct on cost carriers, without requiring any intermediate calculation (examples: the costs of raw materials imported or purchased from the domestic market and that have been consumed in the production process, the cost of specialized services, payment of fees for the use of a specific design or project for manufactured product). Indirect costs are those costs that are not identified in time of forecast or carrying them out on cost carriers are common in to many or even all cost carriers. The importance of knowing the cost for the management of international economic affairs. The performance of managers in the field of international economic affairs depends in a decisive manner on application of concepts and methods of scientific management of businesses. The main directions for improvement of management of international economic affairs in our country are: ¾ increase of competence regarding the appropriation of the mechanisms for making and diversification of international economic affairs; 510 Knowledge Based Organization 2008 International Conference
¾ Knowledge of legislative rules in different countries (on legal issues, customs, currency, tax, etc.). ¾ availability for deployment of a sustained marketing activity in order to identify potential business partners, knowledge of strategies of competing firms, valorization of conjectural situations of the global market in time and space, etc.; ¾ promoting the enterprise and supply of goods and services, and even ¾ development and support of brands through appropriate strategies; ¾ improvement in the activities of negotiation and contracting; ¾ ability in selecting and combining management techniques specific to international economic affairs, leading to the recovery performance of resources; ¾ ability to constantly adapt products and services to dynamic market requirements; ¾ Increasing competitiveness in terms of cost-quality-price ratio. Cost calculation produces and provides information on costs and profits and as a tool of management; it is a technical decision on maximizing profitability. Information produced and managed by calculation of costs is meant for the manager, who must solve problems of allocation and use of resources entrusted from outside by the foreign investors to build performance. With this information managers can assess the viability of alternative strategies for business, can choose between alternative decisions and to assess the segments of activity. At the same time are obtained information essential to the financial accounting regarding the cost of raw materials and materials imported or purchased from the domestic market and the cost of finished products or goods exported or sold on the domestic. Knowing costs is very useful for international economic affairs for three reasons: - the first motivation is commercial, directly related to the functions of supply and disposal; consists in knowing the cost of buying and selling price and, implicitly, the outcome; - the second reason concerns the management of stocks being linked to the profitability of the business, is useful in the 511 Knowledge Based Organization 2008 International Conference
decision regarding the orientation of the assorted portfolio manufactured and marketed; - third reason takes into consideration the general administration of the company with the activity of foreign trade. Knowing the cost of the finished product / goods, the strategy can be set. Information regarding the cost helps the business control, which may be exercised by the carrier cost or depending on the enterprise: supply, production, selling, administrative. The cost allows comparison of forecasts with the achievements per functions of the company's external trade, as well as comparing the achievements related to the successive periods. To achieve these desiderates, the expenses are according to their destination, it is control the cost of supply, the one of manufacturing and the sale one and is determined the efficiency per operative unity, activity or service. In this way it is given the possibility to study the variation of the sales volume, analyzing the decision of entering a new market, knowledge of goods sold at a loss, awareness of the dangers to fall under the the profitability of volume, of price. Analysis of expenditure can be made on: • functions (supply, production, selling, administration); • on groups or subgroups of stocks; • • on activities (export, import, production, providing services); • centers of activity (commercial, administrative). The motivation is that, often, increased the selling price is not possible because of competitive pressures exerted on the external markets.
References [1] Asociaţia Naţională a Exportatorilor şi Importatorilor din România, Provocările Comerţului Exterior, 2008 [2] I.Stoian, Al.Deteşan, Ghidul lucrătorului de comerţ exterior, Revista Economică, Bucureşti, 1993 [3] D.Vişan, Sistemul contabil în comerţul exterior, Ed. Economică, Bucureşti, 1996 [4] D.Vişan, Contabilitatea exporturilor complexe, Ed. Economică, Bucureşti, 1996
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ACTIVITY OF FOREIGN TRADE
Stancu Franca, Dăianu Codruţa
’’Tibiscus’’ University, Timişoara, [email protected]
Abstract Operations of import and export may be made only by economic agents that have stipulated in their object of activity performing such operations. Public authorities with responsibilities in this area are: Ministry of Economy and Commerce, Ministry of Foreign Affairs. The main provisions relating to the import-export can be found in the Customs Code of Romania, which has transformed almost entirely the provisions of the Community Customs Code.
Key word: trade, export, import
The export and import of Romania is based on the premise that export and import of goods from and into the customs territory of Romania is freely without being subject to the issue in advance of a license, unless the products are under the scope of one of the measures taken in accordance with the provisions of GD No. 1526/2003 regarding the general export and import, respectively (Article 2.1 of GD. 1526/2003): a) Prohibition, restrictions or other control measures, certification or approval of export, import or transit justified on the grounds: public morality, policy or public security, health protection and life of people, animals or plants, protection of natural resources, protection of national treasures of artistic, historical or archaeological value, protection of intellectual, industrial or commercial property, regulations on precious metals;
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b) safeguard measures on imports; c) measures to monitor the export or import of products, created for the implementation of international agreements or arrangements; d) the measures provided for by law for organizations of the market for agricultural products; e) statistical measures of surveillance of export or import of products in order to examine trends and conditions for export or import; such surveillance measures for exceptional and limited circumstances, related to risk of threat with severe prejudice on the market, will not be a tool of arbitrary discrimination or a disguised restriction on trade. International trade is the first flow of global circuit and it includes movement of goods and services from one country to another by means of crossing the border through customs of the country concerned. International trade has two components: export and import. Exports express the exit from the customs territory of a country of the goods and services. Exports involve collection rates for the exporting country. Imports refer to entering the customs territory of a country of goods and services from other countries and it involves a foreign currency effort on the part of importing country.Exports and imports designate, in their unity, foreign trade of a country. International trade has a great momentum starting with the big geographical discoveries, when new territories were attracted in the world circuit. The International trade has always been a mirror of the international division of labor, expressing very sincerely the international specialization. Until the last century, international trade flows were dominated by the sale of raw materials, the on the relationship colonies - large cities. The true outburst of international trade occurred after the Second World War, with the technical- scientific discoveries, but also with mutations that have occurred in world economic order. Disintegration of colonial empires and conquest of independence by more and more states have led to involvement in trade flows of more and more participants. Practically all world countries are now engaged in the world economic circuit through import and export 514 Knowledge Based Organization 2008 International Conference relations, making from the international trade the most comprehensive flow of world economic circuit. Analysis of international trade shows a few general characteristics that define this stream: - International trade is a dynamic flow. The value of world exports has increased permanently, reaching today close to 6 000 billion dollars. The rate of growth of world exports was higher than the economic growth rates or of manufactured production. Direct export and import implies that the manufacturer is carrying out by its own departments either the export or import of goods and services. The documents used regularly on export and imports are: 1. Documents required for export - External trade bill (to be completed in at least 3 ex. In the original - not calculate VAT on export!) - Bill of transport and insurance of the merchandise - Transport document and cargo insurance - Documents of exporting company - License, if necessary - Certificate of origin of goods - Certificate of compliance, of quality - Certificate of Guarantee - External contract - Statement for charging in currency - Packing list - Other certifications, if necessary (phyto-sanitary certificates, sanitary-veterinary certificates, certificates of clearance, etc.). - Customs export declaration - Documents required for import - External trade bill - from exporter - Transportation bill (if it is paid separately) - from exporter - Transport document and cargo insurance - Documents of exporting company - from exporter - Documents of importing company - Import license, if necessary - from the Foreign Ministry
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- Certificate of origin of goods - from the customs office or chambers of commerce of the exporting country - Certificate of compliance, of quality - from manufacturer - Certificate of Guarantee - from manufacturer - External contract - Packing list - from exporter - Other opinions, if necessary (phyto-sanitary certificates, sanitary-veterinary certificates, certificates of clearance, etc.). - Import customs declaration Exporting and importing directly implies that the manufacturing company achieved by producing their own departments, both the export and import of goods and services. Producers’ opportunity of taking the commercial profit, manufacturer’s opportunity to maintain contact with the market, being able to imperatively observe the changes that take place in the field of application, and then adapting the export production at mobile requirements of the market represents only several of the advantages of making an own device of foreign trade. Exports and imports indirectly Indirect exports and imports require a separation of functions of the marketing of the production units’ autonomous acting as traders. Traders are companies that work in their own names and on their own behalf, companies working in their own name but on behalf of the others, companies that work both in own name and on behalf of others. Trade policy represents all measures taken by authorities to mediate the contact – by means of trade – between a national economy and the world economy. The scope of the trade policy is extremely broad and may be examined in several ways: a) pursued objectives b) the tools used c) areas covered: with expanding coverage of WTO rules (on issues such as foreign direct investment, services and intellectual property rights), may conclude that there has been an extension of trade policy issues.
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Trade policy orientations are very diverse, ranging from extreme of a full liberalization of trade exchanges (of which are closer several countries or customs territories such as Singapore and Hong Kong) to their exhaustive control, largely by administrative levers (typical case of the command economy, based on public property quasi-generalized and central planning). Trade policy is a component part of the economic policy of a state, which aims the sphere of its external economic relations. The trading policy represents all regulations adopted by a state with administrative, legal, fiscal, budgetary, financial, currency character, etc. for the purpose of promoting or restriction of foreign trade exchange and protection of the national economy by foreign competition. Because of the external economic relations are an important factor of economic growth, the main objective, long-term, which states follow through instruments and commercial policy measures is to stimulate development of national economy and protect it from foreign competition. As a result, the trade policy of each State should fulfill main three important functions: 1. promotion of external economic relations, namely boosting exports; 2. protect the national economy from foreign competition, which involves regulations and controls on imports; 3. tracking to achieve a dynamic equilibrium in trade balance and balance of payments, while increasing foreign exchange reserve of the state. For these long-term objectives, result more the short and medium term objectives: - Improving the structure of foreign trade; - Either restricting or stimulating trade with certain products or product groups; - Geographical targeting of international trade flows: restricting these flows with some countries and their development with others; - Improving the exchange ratio by increasing the purchasing power of exports. 517 Knowledge Based Organization 2008 International Conference
All these objectives are different from state to state, depending on domestic and international. In the field of trade policy, in general, is acting with the help of three main categories of tools and measures: 1. tariff type measures (customs); 2. non-tariff type measures, including para- tariff; 3. promotional type measures (of promotion and incentive). The first two categories are related to import and last aim the export. 1. TOOLS FOR TRADE POLICY OF TARIFF TYPE (CUSTOMS) Customs policy is part of trade policy. Customs policy is made with the help of regulations adopted by the state aiming at entry in or exit from the country of goods and that involves: o control when crossing the state border of goods and means of transport; o completion of the customs formalities; o payment of customs tax, namely the imposition of customs. Main instruments by which customs policy is made are: a) customs tariffs: customs duties, which are taken the imported (exported) goods; b) customs laws and regulations: customs codes and customs regulations. They are different from state to state, using a range of different customs policy instruments. In the customs policy, the customs imposition (rate of customs duty) have the main role and fulfill three important functions: - a fiscal type function, because customs duties are an important source of income to the state budget; - a protectionist type function, because protects the national economy of foreign competition; - a function of negotiation, the fact that the member states can negotiate (either in bilateral or multilateral) mutual customs concessions or non-mutual, which have the role to stimulate trade exchanges. The duties are indirect taxes, which they a state perceives on the goods when they pass the customs borders of the country concerned. 518 Knowledge Based Organization 2008 International Conference
They are instruments of political customs of a fiscal nature, because they are a source of revenue to the state budget. Also, have a direct impact on the price of products that are the object of foreign trade. The duties may be classified according to several criteria, namely: 1. after the imposition of order or the imposition; 2. after the imposition of the subject or by type of foreign trade operations or the direction the movement of goods in foreign trade; 3. by way of perception; 4. after the manner of establishing or fixing by the state. II. Tools that serve to stimulate and promote exports: a) In the promotional means there are: ¾ treaties and international agreements that have for a purpose defining the frame according to which the international economic relations take place; ¾ official economic representations defend and sustain abroad the economic interests of the country on the external market; ¾ uses methods and means form the field of marketing by participation in international fairs and exhibitions. b) Means of exports stimulation are of fiscal, budgetary, foreign exchange and financial-banking type: ¾ of a fiscal type: tax reductions or exemptions, permission for temporary import for re-export drawback scheme; ¾ budget type: the type of subventions when the price of natural products is higher than the world price, direct or indirect subventions (exemptions from certain fees and taxes that affect the cost price of the product meant for export); ¾ currency type: when devalued the national currency boosts exports and negatively influences imports by using the bonuses of currency, specifies a system of multiple classes (when the official exchange rate is considered non-stimulating for certain international transactions); ¾ banking type: it manifests in the credits granted in favorable terms or guarantees from the state on foreign borrowings. III. Tools of non tariff customs policy Non-tariff trade policies represent a complex of public or private measures and regulations, less the tariff ones, aimed to restrict or impede the international flow of goods and services in the defense 519 Knowledge Based Organization 2008 International Conference desire to protect the internal market from foreign competition on the one hand and balancing the external balance of payments on the other. These restrictions can be imposed directly by: quotas, bans, introduction of licenses, voluntary export restrictions, may be indirect: variable fees, price threshold below which is not allowed to import, anti-dumping duties, mandatory establishment of foreign currency deposits. Current trade policy of Romania is the liberalization of the right to conduct foreign trade operations (Law 15/90, 31/90 law, Law 35/91, Decree Law 54/90), both for state firms as well as private, and so regardless of ownership and the nature of capital invested. Financing of foreign trade is made from internal and external sources, the proportion between them depending on many factors, internal and external, such as economic and political nature. Starting with 2007 Romania will apply the Common Commercial Policy of the EU, namely: the common customs tariff; generalized EU scheme of preferences; measures of trade protection; preferential trade and cooperation agreements concluded with third countries; trade commitments under World Trade Organization.
References: [1] Asociaţia Naţională a Exportatorilor şi Importatorilor din România, Provocările Comerţului Exterior, 2008 [2] I.Stoian, Al.Deteşan, Ghidul lucrătorului de comerţ exterior, Revista Economică, Bucureşti, 1993 [3] D.Vişan, Sistemul contabil în comerţul exterior, Ed. Economică, Bucureşti, 1996 [4] D.Vişan, Contabilitatea exporturilor complexe, Ed. Economică, Bucureşti, 1996
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