Journal on Global Socio-Economic Dynamics, № 4 (5), 2017

# 6 (7) November-December, 2017

Listed in: Leibniz Information Centre for Economics (EconBiz)

Indexed in: RePEc

ISSN - 2539 – 5645

# 6 (7) November-December, 2017 International

Peer-reviewed Open-accessed Academic journal

Founded in 2016 Published every two months ISSN - 2539 – 5645 (since September, 2016)

Founder and publisher: International College Suan Sunandha Rajabhat University, Nakhonpathom Education Center 111/5 Moo 2 Tambon Klongyong Phutthamonthon, Nakhonpathom, 73170, Thailand

Editorial board: Editor-in-Chief - Dr. Denis Ushakov (International college Suan Sunandha Rajabhat University, Bangkok, Thailand)

Dr. Ai Tran Huu Van Hien Univesity, Dr. Lean Hooi Hooi “Universiti Sains Malaysia”, Ho Chi Minh, Vietnam Malaysia Dr. Al Fuertes George Mason University, Washington DC, Dr. Ludmila Lipkova University of Economics, Bratislava, USA Slovakia Dr. Alexey Arkhipov South Federal University, Rostov-on-Don, Dr. Luedech Girdwichai Suan Sunandha Rajabhat University Russia Bangkok, Thailand Dr. Anna Davtyan Rikkyo University, Dr. Lyudmyla Ganushchak-Efiimenko Kyiv National University of Tokyo, Japan Technologies and Design, Ukraine Dr. Babu P. George Fort Hays State University, Dr. Muhammad Imtiaz Subhani Iqra University, USA Karachi, Pakistan Dr. Blanka Poczatková VŠB –Technical University Ostrava, Dr. Muhammet Usak Gazi University, Czech Republic Ankara, Turkey Dr. Dmitriy Rodionov Peter the Great Saint-Petersburg Polytechnic Dr. Noor Mohammad North East University, University St.Petersburg, Russia Sylhet, Bangladesh Dr. Evelyn Chiloane-Tsoka University of South Africa, Pretoria, Dr. Oleg Patlasov Omsk Humanitarian Academy, South Africa Omsk, Russia Dr. Fatih Ayhan Selcuk University, Dr. Pavel Slutskiy Chulalongkorn University, Ankara, Turkey Bangkok, Thailand Dr. Frank Ebinger Nuremberg Institute of Technology, Dr. Raeni Dwi Santy University of Computer, Germany Bandung, Indonesia Dr. Ho Cao Viet Institute of Agricultural Sciences of South Dr. Saulesh Kalenova University Turan, Vietnam (IAS), Ho Chi Minh, Vietnam Almaty,Kazakhstan Dr. Igor Lyukevich Peter the Great Saint-Petersburg Polytechnic Dr. Sergey Ivanov University of the District of Columbia, University, Russia Washington, DC, USA Dr. Indrianawati Usman Airlangga University, Dr. Shieh Chich-Jen Huaqiao University, Surabaya, Indonesia Quanzhou, China Dr. Janchai Yingprayoon International College, Suan Sunandha Dr. Sung Pyo Chi Gangneung-Wonju National University Rajabhat University, Bangkok, Thailand Gangneung-city, South Korea Dr. Johan W de Jager Tshwane University of Technology, Dr. Tatiana Isaeva Rostov State Transport University, South Africa Rostov-on-Don, Russia Dr. José G. Vargas-Hernández University of Guadalajara, Dr. Tatiana Skufina Kola Science Centre of the Russian Academy Mexico of Sciences, Apatity, Russia Dr. Koh Noi Keng National Institute of education, Dr. Vera Samarina Starуy Oskol Technological Institute, Singapore branch of “MISIS”, Starуy Oskol, Russia Dr. Krongthong Khairiree International college Suan Sunandha Dr. Vita Zariņa Turiba University, Rajabhat University, Bangkok, Thailand Riga, Latvia

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Well, that's the moment of our first birthday! One year just passed since we published our first issue and, probably, it is already possible to sum up first results! It is pleasant to report that 67 excellent and reviewed papers by the authors from Russia, Thailand, Germany, Indonesia, Serbia, the Czech Republic, Slovakia, Mexico, Argentina, India, Taiwan, China, Vietnam, Ukraine, Pakistan and other countries were published in six issues of “The EUrASEANs”. Our journal was an informational sponsor of two international conferences in Switzerland and Russia, and also received the first international recognition - was included in the catalog of ZBW - Leibniz Information Center of Economics (EconBiz). Currently, we are actively working on inclusion of our journal into national science and citation bases of Russia, India, China, Poland, Thailand, in order to continue to provide not only the high quality of published papers, but also the maximum conveniences for all our authors. In 7th issue, that is opening a second year of our life, 10 papers conventionally united with a common research problems - market state regulation and sectoral stimulation, are presented. Andreeva Ekaterina and Kozlova Elena, examined the problems of modernizing the system of state regulation, emphasized the impact of economy intellectualization and knowledge economy formation as conditions for the state's regulatory competencies transformation, identified ways to improve the state economic regulation efficiency in context of production factors personalization and changing the role of professional work in the structure of production relations. The anti-crisis effectiveness of the state on the example of Ukrainian economy is investigated by scientists from the National University of Uzhgorod - Serzhanov Vitaly and Kostov'yat Anna, who described the feasibility and potential of applying traditional measures of anti-crisis regulation in the conditions of the Ukrainian economy. Arkhipov Aleksey and Eteri Rubinskaya evaluated the changes in the regulatory role of the state in the context of the growing markets transnationalization, efficient international production and distribution networks of TNCs formation. Hung Tran Van and Ai Tran Huu analyzed the transformation of economic role of Vietnam and the dynamics of its national competitiveness within ASEAN, assessed the potential and prospects for the country's integration into the regional economic space. The article by German scientists Richard Stechow and Magdalena Mißler-Behr explores the issues of corporate transformation in the post-industrial revolution, assesses efficiency of innovative models introducing in corporate management at the present stage of the economy's progress, the tools for adapting priorities for innovations generating with strategic guidelines of corporative development. Mária Janošková, Katarína Čulková and Adriana Csikósová carried out an in-depth analysis of the reform of taxation and pension system in Slovakia, stimulated, on the one hand, by the internal need for economic modernization, on the other hand, by the externalization of regionalization and the country's accession to the European Union. Russian expert in the field of personnel management Apenko Svetlana proposes a project management approach to ensure sustainable industry development, assesses the potential of project management technologies in the system of sectoral incentives and administration, tested on the activities of real companies in Russia. The marketing aspects of transnationalization in ASEAN are examined in the paper by Thai researchers - Irina V. Onyusheva and Panirat Kaewpradit, who presented the results of research on the patterns of consumer behavior and the factors of their loyalty. Tourism industry of the Crimea, dynamics of its indicators and main problems of development in the context of political transformations and sanctions policy became a subject of the study by Irina Pavlenko. Based on statistical indicators assessment and indicators of the strategic program for the Crimean peninsula development , the author cites a number of conclusions reflecting the potential of the tourist development of the region even in difficult economic and political conditions, primarily due to the capabilities of the Russian Federation and the Russian market for the tourism product. In the conclusion, another case study characterizing sustainable and successful business development strategies is presented in the article by Irina V. Onyusheva and Kanchanatetee Vasuvat. I am sure that this issue of our journal will be interesting for all our readers! I also would like to congratulate you all on the upcoming 2018 year, wish to implement all professional plans, good luck, great health and new meetings with “The EUrASEANs”!

Editor – in - Chief Dr., Professor Denis Ushakov

# 6 (7) / 2017 Table of contain:

INTELLECTUALIZATION OF ECONOMY AS A “STRONG CHAIN” IN SOCIOECONOMIC REFORMS OF THE XXI CENTURY 7 Ekaterina Andreeva Elena Kozlova STRATEGIC AND ECONOMIC DISPROPORTIONS IN NATIONAL SOCIO-ECONOMIC 19 POLICY FORMATION AND DEVELOPMENT (THE CASE OF UKRAINE) Serzhanov Vitaly Kostov’yat Аnna TNCS AS A FACTOR OF GOVERNANCE MODERNIZATION 26 IN THE XXI CENTURY Arkhipov Aleksey Eteri Rubinskaya VIETNAMESE ECONOMIC RELATIONS WITHIN AEC 39 Hung Tran Van Ai Tran Huu STATE-OF-THE-ART AND FURTHER DEVELOPMENTS IN BUSINESS MODEL 51 RESEARCH FOR INDUSTRY 4.0 Richard Stechow Magdalena Mißler-Behr FISCAL REFORMS AND NATIONAL COMPETITIVENESS 58 (THE CASE STUDY OF SLOVAKIA) Mária Janošková Katarína Čulková Adriana Csikósová INDUSTRIES SUSTAINABILITY: RUSSIA GUIDELINES 69 OF PROJECT MANAGEMENT Apenko Svetlana THE IMPACT ON CONSUMER’S BEHAVIOR: 79 THE CASE OF VIETNAM MULTI-LABEL FASHION STORE Irina V. Onyusheva Panirat Kaewpradit THE IMPACT OF TOURISM 92 ON REGIONAL ECONOMY DEVELOPMENT Irina Pavlenko STRATEGY FOR BUSINESS SUCCESS: 102 THE CASE OF YETI LLC Irina V. Onyusheva Kanchanatetee Vasuvat

“The EUrASEANs: journal on global socio-economic dynamics” Volume 6 (7); November - December, Year 2017; ISSN 2539 – 5645 (Print) Copyright © 2017, [The EUrASEANs] on-line access: https://www.euraseans.com/6(7)

INTELLECTUALIZATION OF ECONOMY AS A “STRONG CHAIN” IN SOCIOECONOMIC REFORMS OF THE XXI CENTURY

Andreeva Ekaterina

Kozlova Elena

Rostov State Transport University, Rostov-on-Don, Russia

Postindustrialization today belongs to the most important criteria of national economic competitiveness and a factor which directly determines country’s positioning in the world economy and international labor distribution. Under the conditions of resource potential limitedness of industrial development as such, this makes extremely actual the search for new principles and new mechanisms for accelerated postindustrial modernization. In this paper we carry out the analysis of postindustrialization as a socioeconomic phenomenon in order to reveal the fundamental causes of its origin and the whole wide spectrum of its consequences which are supposed to transform the global economic system. We also plan to present the conceptual grounds of infrastructural and institutional provision for postindustrial modernization viewed here as a large-scale reform of a socioeconomic system of a country under the intellectualization of production relations initiated and fully supported by the state.

Keywords: postindustrialism; innovatization; modernization; intellectualization; reforms; innovation potential; high-tech export

Intellectualization of today’s socioeconomic systems is an important factor defining the trajectory of their further development. At the same time, the speed of socioeconomic systems’ intellectualization depends on their parameters which can be evaluated quantitatively and qualitatively in the global context of postindustrialization trends. In some economic systems the process of production intellectualization can be gradual and stable, in full accord with the overall dynamics of economic relations’ transformations

Ekaterina Andreeva is a candidate of philosophy science (since 2007) and senior lecturer in humanitarian faculty in Rostov State Transport University, Rostov-on-Don, Russia. Her scientific interests include problems of cultural transformations of the modern society, economic and innovative aspects of tourism and hospitality, the economic problems of the regions of Russia. Were published more than 38 scientific and methodical works, monographs, teaching and training; participated in international conferences, including in Russia, Malaysia, Indonesia, Thailand, Philippines, International Congress on tourism and hospitality ("Greek forum"). E-mail:[email protected]

Kozlova Elena is a candidate of economical sciences (since 2006); PhD – candidate in South Russia Federal University, Rostov- on-Don, Russia (since 2013); senior lecturer, vice-head of “Social technologies” department in Rostov State Transport University, Rostov-on-Don, Russia. Her science interests are concentrated around international migration, Government regulation of International labor movement, macroeconomic reasons of migration. She published more than 19 articles in Russian federal and international journals; participated in 13 International scientific – practical conferences. E-mail:[email protected]

INTELLECTUALIZATION OF ECONOMY AS A “STRONG CHAIN”

(including liberalization of small business development). In other countries the processes of intellectualization can be artificially stimulated from the outside, due to the influence of international business. In yet another countries intellectualization of production relations is initiated by governments which view intellectualization as their only chance to speed-up the modernization of economy so that to reposition the country at the international market of labor distribution. Positioning of any socioeconomic system today as well as finding the sources for its competitiveness would be impossible without taking into account the intellectualization factor. Reaching a certain level of intellectualization, economies are provoked to form a cluster of globally competitive sectors so that to provide stable impact on the formation and implementation of a national economic policy. The analysis of intellectualization indicators of production relations shows there is a wide range of additional opportunities to forecast future development of socioeconomic systems and define the variants of potential development in the context of the global trends and taking into account the conditions of global technological progress. Within the frameworks of this particular study we offer a methodology for determining the level of intellectualization of economic systems in contemporary states. The methodology is based on the comparison of their indicators of intellectual potential and on the level of knowledge demand within a particular socioeconomic structure. Factors determining the intellectual potential of a country in today’s conditions are, first of all, the overall state of national education system (the number of education institutions, the volume of state financing, general accessibility of education, quality of education processes, adaptability and adequacy of education to global needs and requirements), and also how integrated and involved is the general population of a country into the global information environment (yearly volumes of new scientific literature and research studies in a country, number of specialized periodicals in it, access to information and communication technologies for general public, access to international exchange programs and grants etc.). Finally, the overall society’s capacity for intellectual labor is defined by certain social and cultural features of its representatives. Despite the obvious complexity with determining the sociocultural disposition of a particular society to intellectual labor, some of the scientists managed to carry our studies and somehow formed the global rankings of societies according to this criterion. For example, Richard Florida has been assessing creativity and intellect of nations using his own original method based on the synthesis of such indicators as talent, technology and tolerance (known as Three T model). This model indeed reveals certain cultural, religious, social and technological aspects of “creative class” formation within a certain local community (Florida, 2004). Comparing relatively objective indicators of social conditions for intellectual potential development as well as the results of local communities’ creativity assessment we got the following the results (see Table 1).

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017

Table 1 - Development of intellectual potential of contemporary nations, 20101 (calculated by co-authors)

# Country 3 # Country

2 4

intellectual

development development

Synthetic indexof Synthetic indexof

intellectual potential intellectual potential

Population capacity to Population capacity to

generate knowledgenew generate knowledgenew

Conditions for intellectual Conditions for 1 USA 100 82,42 91,21 21 Italy 41,75 41,45 41,6 2 Sweden 59,74 100 79,87 22 Czech Rep. 28,85 47,27 38,06 3 Finland 68,19 84,65 76,42 23 Malaysia 18,84 55,93 37,39 4 Norway 72,15 73,63 72,89 24 Spain 29,42 45,17 37,29 5 Denmark 67,03 75,86 71,44 25 Greece 26,45 45,91 36,18 6 Holland 67,22 75,61 71,42 26 Hungary 28,29 34,9 31,59 7 Japan 45,15 94,8 69,97 27 Portugal 33,53 28,95 31,27 8 Switzerland 60,07 78,83 69,45 28 Slovenia 26,5 35,76 31,13 9 Singapore 42,11 92,8 67,46 29 Russia 18,08 41,95 30,01 10 Australia 56,12 65,34 60,73 30 Slovak Rep. 23,65 36,01 29,83 11 Belgium 48,98 65,09 57,04 31 Lithuania 24,59 32,42 28,51 12 Germany 39,03 71,4 55,22 32 Poland 26,43 29,57 28 13 France 52,69 57,17 54,93 33 Latvia 22,64 32,42 27,53 14 Israel 42,68 64,97 53,82 34 Bolgaria 17,99 34,03 26,01 15 Canada 38,72 67,05 52,89 35 Argentina 19,86 24,62 22,24 16 New Zealand 48,78 56,8 52,79 36 China 15,51 28,46 21,98 17 Australia 49,78 54,2 51,99 37 Chile 19,85 22,89 21,37 18 UK 39,81 63,98 51,90 38 Mexico 20,84 20,29 20,57 19 Ireland 37,01 51,23 44,12 39 Brazil 18,23 19,67 18,95 20 South Korea 26,03 57,54 41,79 40 Thailand 18,79 16,7 17,749 Outsiders 48 India 11,78 21,9 16,84 61 Algeria 12,54 0,49 6,51 49 UAE 27,59 5,18 13,79 62 Zimbabwe 12,55 0,37 6,46 50 Philippines 13,12 12,12 12,62 63 Kenya 11,6 0,37 5,98 51 Indonesia 10,81 12,25 11,53 65 Cameroon 10,67 0,12 5,39 52 Morocco 12,96 1,52 7,245 66 Bangladesh 10,29 0,12 5,2 53 Egypt 12,94 1,37 7,15 68 Pakistan 10,22 0,12 5,17 60 Nigeria 12,87 0,8 6,84 70 Cote d'Ivoire 10,09 0,12 5,1

1 The research covered only 70 largest countries of the world 2 Calculated by the author on the basis of comparative assessment of education, cultural, transport, communication, market and social infrastructure of the society (the World Bank data. 100 is the maximum value (USA)) 3Calculated applying the Three T method of Richard Florida, where 100 is the maximum value (for Sweden) 4 Calculated by the author on the basis of comparative assessment of education, cultural, transport, communication, market and social infrastructure of the society (the World Bank data. 100 is the maximum value (USA)) 5 Calculated applying the Three T method of Richard Florida, where 100 is the maximum value (for Sweden)

INTELLECTUALIZATION OF ECONOMY AS A “STRONG CHAIN”

Table 2 - Employment in high-tech branches and intellectual labor productivity6 by countries of the world7 (as of 2010)8

, % ,

labor

# Country

tech import,

USD.

people .

bln USD

Innovative and

tech sectors, ths

Population, mln

Employment

high

producitivty, ths

Intellectual Employed in high 1 USA 294 5,5 449,7408 8890,56 396,97 2 Japan 128 4,7 155,3328 3415,552 133,95 3 China 1296 4,2 197,064 37247,04 63,556 4 UK 60 4,6 127,44 1373,76 49,684 5 Germany 83 11 175,3244 1255,79 48,864 6 France 60 9,9 101,1218 1027,14 39,839 7 South Korea 48 3,7 98,736 1525,392 19,635 8 Mexico 104 2,5 42,588 2129,4 17,331 9 Holland 16 4,3 109,1415 444,048 16,6 10 Italy 58 8,7 36,2448 423,632 14,723 11 Canada 32 7,2 52,0296 415,744 12,541 12 Australia 20 5,6 16,0524 264,32 8,204 13 India 1080 4,3 6,5645 5167,8 7,661 14 Switzerland 7 4,3 34,6544 147,378 7,657 15 Spain 43 11 18,928 267,89 7,553 16 Thailand 64 1,5 40,257 2206,4 7,452 17 Brazil 184 9,7 13,0464 1993,824 6,373 18 Russia 144 7,8 21,4515 1194,912 6,025 19 Singapore 4 5,4 111,7401 223,256 5,573 20 Ireland 4 4,4 49,504 130,016 5,513

The carried out research on the state of intellectual potential shows the absolute leadership of the US, countries of Nordic and Western Europe, and also Israel and Japan. To the top-40 also belong the countries of rapid modernization, including some from Eastern

6 Taking into account the number of work stations, directly or indirectly related not only to the development of new technologies and the process of innovation, but also those within technological production, sales and marketing 7 We have analyzed only those countries with the absolute indicator of innovative export being over 0.5 bln USD 8 Experimental calculation, using the ratio of real population employment in services and industrial production with the volume of added value created in these sectors and the share of this production in national exports. The data obtained in this experimental way for the selected countries (USA, Russia, France, Japan, UK, and China) in general complies with the official statistics of these countries (the error is no more than 6%). Thus, we can assume that the method is credible and valid for further use

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017

Europe, and also the states engaged in active imitation of innovations (Thailand, Malaysia, Brazil, China, Mexico, Argentina and Chile). As already noted above, for further intellectualization of production relations in contemporary societies availability of intellectual potential only is definitely not enough. The capacity of intellectual labor should be supplemented by the demand for it from the side of an economic system and also by its high productivity and efficiency. Only in this case intellectual potential would turn into a production factor and a system of motivation for new knowledge generation would be formed, thus changing the quality of life conditions for local population. Demand for intellect in various societies can be influenced by many factors, including: transparency of intellectual results’ assessment, evaluation of its efficiency, the role of intelligence in the overall labor productivity, the level of intellectual property rights protection, public spending on research, the number of patents issued etc. Taking into account the complexity of objective calculation of the demand for intellect in the economic systems of today’s states, within the framework of this research we have used the indicators which demonstrate the productivity of intellectual labor in export-oriented high-tech sectors of national economies as well as external competitiveness of national high- tech production. In our opinion, these two indicators have the following strong sides: They can be measured rather objectively; They demonstrate the efficiency of intellect use by the economic system of contemporary states (since they take into account the criteria of high-tech productions development synthesizing scientific and innovative potentials of societies; efficiency of cooperation between research centers, education institutions and business; efficiency of new knowledge transfer etc.) They also show the dynamics of high-tech productions’ development in comparison with other branches of national economic systems which is the direct manifestation of intellectualization rates. At the same time, the suggested methodology of intellectual demand calculations for various economic systems has a range of limitations in its application as an analytical instrument. For example, this methodology describes only the development level of export- oriented high-tech productions, while other technological productions (oriented on internal markets) are disregarded. Intellectual labor productivity is measured taking into account numerous quantitative indicators of development (for example, the share of a given sector in creation of consumer cost, the share of a given sector in national export or in population employment). At the same time it also has its qualitative indicators which determine the opportunities for global acceptance and popularity and the strength of competitive advantages at the world markets. Obviously, the leaders in labor productivity in export-oriented high-tech sectors are Western Europe, the USA, Japan, Australia, BRICS countries, China and India, and also some of the ASEAN countries. Comparatively low values of labor productivity in export- oriented high-tech sectors of some European countries (for example, Belgium or Greece) can be explained by the fact that larger share of their national production is not export-oriented as such and is aimed at internal consumption only (due to high internal demand, for example). On the opposite, there are also countries with strong export dependence of their economies (for example, Thailand or Mexico where most of technological products are exported). The

INTELLECTUALIZATION OF ECONOMY AS A “STRONG CHAIN” indicators of these countries would be many times higher than the same indicators for economically much more developed countries of the West. The second indicators in the system of intellectual potential demand assessment are the external competitiveness of high-tech sectors of the countries. It determines how attractive is national high-tech export in comparison with other export items; and it is calculated as the ratio of country’s share in the world exports of a particular product to the share of the country in the world export overall (see Table 3).

Table 3 - Revealed comparative advantages (RCA) of high-tech production by countries, as of 20109

# Country # Country

RCA RCA

1 Singapore 2,770802 21 France 0,892292 2 Malta 2,723839 22 Norway 0,845329 3 Malaysia 2,066361 23 Germany 0,798367 4 Costa Rica 1,737622 24 Sweden 0,798367 5 Thailand 1,643696 25 Indonesia 0,751404 6 Ireland 1,596733 26 UAE 0,657478 7 South Korea 1,549771 27 New Zealand 0,657478 8 Hong Kong 1,502808 28 Estonia 0,657478 9 USA 1,502808 29 Australia 0,657478 10 China 1,408882 30 Canada 0,657478 11 Hungary 1,36192 31 Czech Rep. 0,610516 12 Holland 1,36192 32 Croatia 0,610516 13 Japan 1,314957 33 Luxemburg 0,563553 14 UK 1,127106 34 Austria 0,563553 15 Cyprus 1,03318 35 Brazil 0,563553 16 Switzerland 1,03318 36 Greece 0,51659 17 Mexico 0,986218 37 Morocco 0,51659 18 Finland 0,986218 38 Portugal 0,422667 19 Denmark 0,939255 39 Belgium 0,422666 20 Israel 0,892292 40 Russia 0,422665

As we can see from Table 3, having the highest indicators of intellectual labor productivity, USA, countries of Nordic and Western Europe still, in the ranking of high-tech external competitiveness are only in the top-20, giving way to the industrially developed countries of South-Eastern Asia. This can be explained by the latter economies’ radical restructuring in the direction of their intensive intellectualization, namely, through innovations transfer, attraction of intellectual assets of foreign corporations, welcoming foreign technologies productions into these countries etc. For example, Japan has relocated much of its actual automobile production to Thailand and China, many US computer

9 WTO data

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 companies are actually building them in Malaysia, many other technologies processes have been relocated from a range of European countries to Malta etc. All of this predetermined export orientation of the newly established economic sectors in these countries from the very beginning. More attractive conditions for technological companies’ functioning in South Eastern Asia and the Caribbean naturally led to the reduction of technological productivity in the countries which were technological leaders for years. And this, in turn, has led to lower external competitiveness of their high-tech sectors. Also noteworthy, the RCA indicators, mentioned above, take into account only the quantitative indicators of exports, while it disregards the quality gap between the productions in the US, Western Europe and Japan on one side and in modernizing economies of the Asian Pacific region and in former socialistic countries on the other. Using the average values of intellectual labor productivity and external competitiveness of high-tech productions in the countries of the world, we can come up with their ranking, in which the max. Average value is 100. The indicators of intellect demand and intellectual potential are presented in Table 4. Using our results, we can also build a diagram (see Figure 2) in which the states are located according to the differences in their intellectual potentials and their capacity for this potential economic use.

Table 4 - The indices of intellectual potential and intellect demand in the selected countries, 2010

ntial

# Country # Country

indicators indicators

Intellectual pote Intellectual potential

Demand for intellect Demand for intellect 1 USA 78,73 91,21 16 Italy 19,6 41,6 2 Singapore 50,73 67,46 17 Finland 18,3 76,42 3 Japan 41,14 69,97 18 Denmark 17,56 71,44 4 Malaysia 37,85 37,39 19 Norway 15,72 72,89 5 China 33,69 21,98 20 Iceland 15,24 37,29 6 Thailand 30,63 17,749 21 Sweden 15,12 79,87 7 South Korea 30,52 41,79 22 Indonesia 13,81 11,53 8 Ireland 29,53 44,12 23 Canada 13,49 52,89 9 UK 26,8 51,9 24 Australia 12,93 60,73 10 Holland 26,74 71,42 25 New Zealand 12,03 52,79 11 Hungary 25,01 31,59 26 UAE 12,0 13,79 12 France 21,28 54,93 27 Czech Rep. 11,2 38,06 13 Germany 20,76 55,22 28 Brazil 11 18,95 14 Mexico 20,05 20,57 29 Austria 10,63 51,99 15 Switzerland 19,64 69,45 30 Russia 8,41 30,01

On the left side of this diagram are located mostly the countries in which the efficiency of intellectual labor is manifold higher the intellectual potential of their societies. This is mostly about the rapidly modernizing countries of the South-East Asia, including, first of all,

INTELLECTUALIZATION OF ECONOMY AS A “STRONG CHAIN”

China and South Korea, and also some of Eastern European countries. All these countries already have excellent infrastructures for intellectualized productions; however, their local population still does not have enough intellectual potential. Today the progress of these countries depends mostly on imported innovations, rather than on the development of own, original and local innovations. Further development of these economics would depend on the potential increase of local intellectual potential through certain socioeconomic practices and measures of state regulation.

High demand for

Тhailand Indonesia intellectual potential

China Mexico

UAE

Malaysia Hungary

Italy South Korea Ireland Greece Intellectual potential UK Spain Singapore France Japan USA Germany Czech R. Russia Portugal

Switzerland New Zealand

Belgium Denmark Finland Australia Canada Norway

Sweden

Figure 2. Countries’ positioning depending on their intellectual potential and the capacities of its economic application (authors' own construction)

On the right-hand side of the diagram we can see mostly the state the intellectual potential of which is rather higher, however, it had little engagement in their economies, and thus, essentially, it is wasted for nothing. These are the economies of Northern and Central Europe, Australia and New Zealand, and also Russia. All these countries have a common feature – the misbalance between supply and demand for knowledge. The right strategy for this group of economies should include the improvement of national infrastructure for intellect commercialization, or more active approaches to technological import. In the center of the diagram we can see the US, Japan and some of Western European countries. These are the countries of good balance under which the overall state of intellectual potential complies with the opportunities for its economic application. This

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 means that these societies are able to develop further, being not significantly dependent on the world markets of knowledge and technologies. These countries reckon more on their internal production and consumption, and this mean they would maintain stability in case of dynamic changes in the global economic environment. At the same time, we need to note here the zone on the diagram with a dotted line. Here belong the outsiders of the world progress of intellectualization, since low intellectual potential and little opportunities for its economic use at the same time locate them here. Therefore, the today’s indicators of intellectual potential in many cases (in the cases of many countries that is) do not manifest the actual capacities for their participation in international intellectualization of economic relations. Thus, there arises the necessity to add to our methodology one more indicators – the demand for intellect and the opportunities for its commercialization on the basis of the available national economic infrastructure. The use of a synthetic index of intellectualization demonstrates that there are quite many countries in which the available intellectual potential and the opportunities for its further commercialization are rather misbalanced, and this definitely requires certain changes in local social and economic policies so that to fix this misbalance. Overall, we can outline three groups of socioeconomic systems. In the first group of countries the intellectual potential is lower than its demand. In the second group the situation is reverse; and finally, in the third group we observe a relative internal balance between the potential level and the opportunities for its active commercialization. The major problem of the countries in the first group is that their intellectual potential finds little demand, thus, the country is quickly losing the potential for further development and its overall development starts hindering. One of the most dangerous consequences of that is further degradation of intellectual potential. This was, comparatively recently, observed in Russia, for example: during the period of 1990-1999 the number of Russian scientists reduced drastically – from 1533 ths people to only 837 ths! (Medvedev, 2009, 111-113). In such a situation intensive export of technologies would not solve the problem, but would only hide it, the internal misbalance would still remain. Active transfer of innovations and ideas overall abroad provide more opportunities for their further copying and thus, stimulates modernization in other countries, limiting at the same time the opportunities for local commercialization of new knowledge. Clearly, in such a situation the social class of intellectuals would lose all motivation for intellectual activity as such. On the other hand, too high demand for intellectuals could be also inefficient. High level of intellectual demand is the evidence that generations of technologies are changing too quickly and thus are not able to realize the potential they have inside for higher economic output. This is, inter alia, can be observed in a situation of the so-called “intellectual race”, when intellectualization serves not the purposes of extra income (“intellectual rent”), but is used for merely survival of enterprises under hyper-intense competitive fight. In a similar vein, import of innovations in the economies of the second group can stimulate the stabilizing processes, to a certain level though. Availability of imported technologies reduces the motivation for own development of national innovations, thus widening the gap between national intellectual potential and the opportunities of its use in national economic practice. In this case in near future one can expect drastic decrease of technological productions’ efficiency (up to their full liquidation) and elimination of all intellectual advantages which were so hard to obtain.

INTELLECTUALIZATION OF ECONOMY AS A “STRONG CHAIN”

Also noteworthy here, international transfer of innovations, absence of international infrastructure for intellectual property global protection and also differences in the costs of intellectualization production factors along with some other factors may increase the misbalance between the intellectual potential and the opportunities for societal intellect commercialization. All of this would create the effect of “availability of imported new knowledge”, or there is always an opportunity to relocate technological production to a developing country. Both variants would eventually lead to the situation when the process of society’s intellectualization stops as such, thus, the country would be pushed back to the periphery of global postindustrialization.

Conclusions

Transition to the postindustrial phase of socioeconomic development is always based on the intellectualization of production relations. And the latter, in turn, does not necessarily mean radical transformation of economic system’s functioning, but serves more as a key instrument for leap-frogging increase in efficiency due to more active implementation of the latest technological discoveries and innovations in all types of economic activities, including the most traditional ones. Here we can mention the major manifestations of production relations’ intellectualization: labor substitution by knowledge, which means transition from mostly technical skills to predominantly intellectual ones; outstripping development of intangible knowledge in comparison with tangible one; transition from technocratic to anthropocentric organization of all production processes and labor overall; democratization of all sorts of economic relations, which is generally viewed as social cooperation between all stakeholder groups; destruction of property rights in all fields related to information and knowledge; setting new priorities on the individual and social levels in the context of gradual transition from maximization of material consumption to more non-monetary well-being. Rates of socioeconomic systems’ intellectualization depend on a range of parameters which can be measured both quantitively and qualitatively. Also, much depends on the initial conditions of country’s connection to the global trend of postindustrialization. In some economic systems the process of production intellectualization goes rather homogenously, synchronously to the general dynamics of economic changes, while in others the processes of intellectualization are artificially stimulated from the outside, due to the impact of transnational companies on local economies. In a third group of countries intellectualization of production relations is initiated by their governments which see postindustrialization as their only chance for intensified modernization of national economy and for its repositioning within the structure of international labor distribution. Within the frameworks of this study we also offer a methodology for determining the level of contemporary economic systems’ intellectualization, based on the comparison of indicators of their intellectual potential and that of knowledge demand within the society’s economic structure. Factors determining the intellectual potentials of contemporary states include: the state of country’s education system; local population engagement in the global information environment; the selected social and cultural features of local community’s representatives. Societal demand for intellect also experiences the impact of a wide range of factors, including the transparency of intellectual labor results’ assessment, evaluation of its

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 efficiency, its role in overall labor productivity, the level of intellectual property rights protection, the volume of state spending on R&D, the number of issued patents. Taking into account the complexity of determining and objective calculation of intellect demand in the economic systems of contemporary states, within the frameworks of this research we have used the indicators manifesting the productivity of intellectual labor in export-oriented high-tech sectors and external competitiveness of national high-tech production overall. Application of the synthetic index of intellectualization demonstrates the availability of intellectual potential in the world structure of countries along with the potential opportunities for intellect commercialization. In the countries where intellectual potential and its commercialization potential are misbalanced, significant corrections of social and economic policies are required. At this stage we can outline three groups of socioeconomic system in this regard: in the first group of countries the intellectual potential is significantly lower than its demand; in the second group the situation is reverse, and finally in the third one we observe a relative internal balance between intellectual potential and commercialization capacities. The key problem of the societies of the first group is that their intellectual potential fails to find the demand, thus, the countries are losing the overall development potential and gradually, start lagging behind even developing countries. One of the soonest consequences for this would be quick degradation of intellectual potential inside the country. At this, rapid development of technologies’ export only hides the problem of real internal misbalance, since intensive transfer of innovations to foreign countries creates additional opportunities for their copying and thus, for modernization of other countries. And this, in turn, only worsens the situation with local commercialization of new knowledge, lowering the motivation of local well educated personnel to invent something new. On the other hand, too high values of intellect demand criteria can be also inefficient, since they provoke the so-called “intellectual race”, during which intellectualization serves not the purposes of getting added value, but more for enterprises’ mere survival under competitive fight. In a similar manner, import of innovations in the economies of the second group mentioned above may stimulate the processes of intellectual potential stabilization, but up to a certain level only. Easy access to imported technologies lowers the motivation to develop own, original and national innovations, and this, in turn, widens the gap between intellectual potential and opportunities of innovations’ implementation in real practice. Further on, this would lead to significant decrease of technological productions’ efficiency, up to liquidation of some of them, due to loss of competitive advantages and also loss of all prospects for intellectualization expansion. Also noteworthy, international transfer of innovations, absence of international infrastructure capable to protect intellectual property globally and also differences in intellectualized production factors stimulate further the misbalancing between intellectual potential and commercialization opportunities, thus creating new and expanding the existing opportunities for imported new knowledge and relocation of technological production venues to developing countries. Both would eventually stop the processes of intellectualization as such, and thus a country would be pushed away on the periphery of global postindustrialization.

INTELLECTUALIZATION OF ECONOMY AS A “STRONG CHAIN”

References:

Arkhipov, A., Ushakov, D. (2014). Functional effectiveness and modern mechanisms for national urban systems globalization: The case of Russia (Book Paper). Urbanization and Migration as Factors Affecting Global Economic Development, IGI – Global. Chernyakov, B.A. (2001). Role and place of the largest agricultural enterprises in the agrarian sector of the United States. Economics of agricultural and processing enterprises. N 5. Countries of the world. United Nations Statistical Handbook. 2010. Moscow: The world. Delyagin, M.G. (2003). The global crisis: the general theory of globalization. Moscow: Infra-M. Florida, R. (2004). The flight of the creative class. NY. Harper Business. Grinin, L., Korotaev, A. (2010). The Global Crisis in Retrospect: A Brief History of Rises and Crises: from Lycurgus to Alan Greenspan. Moscow: Librocom. Inozemtsev, V. (1998). Outside the economic society. Post-industrial theories and post-economic trends in the modern world. Moscow, Academia - Science. Inozemtsev, V. (2000). Modern post-industrial society: nature, contradictions, perspectives. Moscow: Logos. Ivanov, D. (2004). The Society as a Virtual Reality. The Information Society. Moscow, AST. Korotaev, A., Khalturina, D. (2009). Current trends of world development. Moscow: Librocom. Medvedev, V. (2009). Before the challenges of post-industrialism. Moscow: Alpina Pablisher. Pereslegin, S. (2006). Self-instruction of game on the world chess board. Moscow: AST. Pocket world in figures, 2010 edition. Economist, London. Porter, M. (2003). Competition. Williams. Ushakov, D. (2016). Dynamics of international economical relationships in the global context of innovative modernization. International Journal of Environmental and Science Education, 18 (11). Warner, M. & Witzel, M. (2005). Virtual organizations are a new form of business in the 21st century. Good book. Bell, D. (1999). The future post-industrial society. Moscow, Academy. Zinoviev, A. (2003). The Global Hangman. Moscow: EKSMO, Algorithm.

Paper submitted 12 June 2017 Paper accepted for publishing 03 September 2017 Paper pubslihed on-line 30 November 2017

STRATEGIC AND ECONOMIC DISPROPORTIONS IN NATIONAL SOCIOECONOMIC POLICY FORMATION AND DEVELOPMENT (THE CASE OF UKRAINE)

Serzhanov Vitaly

Kostov’yat Аnna

Uzhgorod National University, Uzhgorod, Ukraine

Strategically important task for contemporary Ukraine is to its steady and balanced development which is supposed to provide peace and harmony in the country and to minimize the threats that affect its development. This paper examines both economic and social imbalances that have evolved and still exist today in the economy; it also analyzes the strategic projects, national methods to achieve high indicators of economic and social development. And inter alia, it tests Ukraine’s monetary integration with the EU.

Keywords: national economy, economic growth, international relations, economic imbalances, macroeconomic shocks, financial sector, competitiveness, strategy.

Introduction

Significant regional differences in all economic and social indicators were peculiar for Ukraine, even when it used to be still USSR (Strategy of economic and social development of Ukraine for 2004-2015). During the years of independence these differences were not only flattened, unfortunately, but in many important aspects ther even got larger. Ukraine has every necessary resource to become a truly economically powerful state — it has natural resources of strategic importance (such as uranium, titanium sponge, colored and alkaline metals, iron ore, coal etc.), it also has high scientific and production potential, and the quality of its national labour resource is also rather high.

Serzhanov Vitaly

PhD in Economics, Assistant Professor, dean of economic faculty in Uzhgorod National University, Ukraine Research interests – Government regulation of economy, macroeconomic, strategic planning of national development, business administration. Published about 50 papers in international journals

Kostov’yat Аnna

PhD – candidate, lecturer in economic faculty of Uzhgorod National University, Uzhgorod, Ukraine Her science interests include governance, state regulation of economy, macroeconomic issued of national development, financial decentralization and integration in European continent

STRATEGIC AND ECONOMIC DISPROPORTIONS IN NATIONAL

Transformation changes which were enevitable due to the shift from the command- administrative economy to the market one did not result in meaningful economy’s restructuring and/or automatic changes in the course of country’s socioeconomic development. In fact, the economy’s structural imbalances lead to violation of the reproduction economic cycle and serious distortions between the state of real economy and that of the financial sector, which ultimately disrupts the stability of economic growth. The attempts to smooth regional socioeconomic development initiated by the Ukrainian government did not provide any meaningful result so far, vice versa actually, they seem to only strengthen these disproportions. The problems of national economy development have been considered previously in numerous scientific publications, concerning, inter alia, the technological advance, national strategies’ developmenet oriented on innovative development and knowledge economy formation. However, it is necessary to note here that the main factors causing current imbalances in Ukrainian economy include: reduction of the real sector share in national economy; accelerated inflation which is leading to lower incomes and thus, to less of consumption; increase of capital outflows from the country; sharp decrease in the number and volumes of bank deposits and loan supply etc. In 2015, the depreciation fund has exceeded gross capital investments’ volume; savings today are mostly concentrated in financial institutions, government and households, while investments are targeting primarily the raw material industries. This can only mean that the country is becoming more and more dependent on imports of various sorts (Kovalenko, 2005). The period of economic recession / recovery and their amplitude affects the priorities, goals and objectives of the national social and economic policies. The country today is still suffering from the instability of economic situation as it can be clearly seen in Figure 1.

Figure 1 - The dynamics of the rate of growth / decline in GDP of Ukraine during 2002-2014 years (in %) (Source: The National Bank of Ukraine)

Analyzing the disproportions in Ukrainian economy and its macroeconomic indices in particular, we should pay attention, first of all, to the industrial production decline during the

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 last 36 months. Moreover, inflation has already exceeded 50%, GDP drop was about 17,6% back in 2015, thus only confirming the signs of serious economic recession. Part of gross capital in GDP during 2010-2013 was about 17-18% (only in 2012 it was 19%), and in 2014 it dropped down to 14%. For example, in Poland this index failed by 19- 20% during the same period. Insufficient investing and the lack lack of foreign investments resulted in export decrease (in 2013 export was by 28% less than in 2005, while import was by 20% higher). The business climate in the country also became worse, foreign investments fell down from 1,8% of GDP in 2013 to 0,2% in 2014. As compared to neighboring countries the depth of Ukrainian economic decline was one of the largest (similar recession in this period was observed only in Moldova), and this crisis period also lasted longer (Figure 2).

Figure 2 – Dynamics of Ukraine’s GDP and that of neighbouring countries in the period from 1990 till 2014, % to the index level of 1990 (Source: World Development Indicators)

Figure 3 - Rankings of the Global Competitiveness Index (GCI), 2016

STRATEGIC AND ECONOMIC DISPROPORTIONS IN NATIONAL

In 1990 prices, GDP per capita in the pre-crisis 2011-2012 years was just under 80% of the national GDP level back in 1990. If in previous years (1990-2008), these figures gradually grew up by 50% (in the first years of independence) and then by 83.3% (2007- 2008), later this rate has decreased significantly (State Statistics Service of Ukraine, 2013). In 2014, GDP per capita was only 3082.5 US$. The average tax rate on enterprises income in Ukraine in 2015 was 52.2% against the average of 38.7% in the countries of Eastern Europe and Central Asia and 41.5% in the OECD countries. And the average duration of time required for taxation procedures was 350 hours vs. 201 hours in Eastern Europe and Central Asia and 181 hours in the OECD countries (World Development Indicators, 2016). Own revenues of local budgets in 2015 reached 120.46 billion USD, grants and subsidies – 173.98 billion. Thus, if in 2014 the share of transfers in budget revenues was 54.9%, in 2015 it increased to 59.1% Regarding the Global Competitiveness Index (GCI) Ukraine is ranked 85th among 138 countries in this world rating, thus going down by six positions from its previous rank in the GCI. In accordance with the Government Prior Plan in 2016, the Cabinet has to initiate legislative changes that would allow Ukraine enter the top 50 best countries ranking in 2018 and top-20 in 2019 (Ministry of Economic Development and Trade of Ukraine). According to the survey now Ukraine shows low positions by 7 out of 12 key indicators of economic efficiency: the worst indicator is “Labor market efficiency” (-17 points), situation with financial market development, health and primary education look a bit better (9 points). Total losses of Ukraine in 2013-2016 years can be presented in the following way: GDP fell by 35%; loss of territory = 6,9%; loss of population - about 5 mln people (which is about12-13% of the country’s population). At the same time examples of other transitive countries, such as that of Poland, Slovakia or Baltic countries, show that a comprehensive approach implemented fast enough and combining macroeconomic stabilization measures with structural changes may bring relatively quick positive results. For example, after macroeconomic stabilization and implementation of structural reforms in 2002-2003 Slovakia achieved the fastest economic growth in Europe. More or less similar experience had Baltic countries which managed to develop quite intensibely after the Soviet Union collapse and even after the global financial crisis of 2008-2009. Following the National plan, steady growth of 5% per year and keeping low inflation rate at the same time will allow Ukraine double GDP per capita (PPP) in 15 years (20,000 US$ in 2030). Taking into account huge economic and social losses of Ukraine during its independence, and especially in the last 3 years, this goal seems to be very ambitious, if not too much ambitious.

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017

Figure 5 - Spot rate against the major world currencies (Source: Macroeconomic Review of Ukraine: different rates of recovery)

Analyzing the advantages of Ukraine we must first of all mention 42 mln of highly educated population (according to the UN, the index of education in Ukraine is equal to 0.94). Another important advantage is that the country is located on the shores of the Black and Azov Seas, has very fertile soils for agricultural production and also a well-developed gas transportation network, favorable location within the «Silk Road» for energy, cultural and transit between the East and the West. Current trends of the country’s external development remain to be rather positive and optimistic. The current deficit of the balance of payments for 5 months in 2016 amounted to only US$ 0.4 billion. The financial account is also close to zero – Ukraine is not yet attractive enough for foreign investments, but at the same time, it managed to stop a massive outflow of capital. The foreign exchange market has been mostly quiet since 2016: the National Bank of Ukraine regularly removes temporary surplus currency through intervention. The regulator has reduced the requirement of mandatory sale of foreign currency for exporters from 75% to 65% and partially lifted the ban on dividends’ repatriation. In this regard, we expect that the National Bank will continue the policy of liberalization and removal of almost all restrictions imposed on the peak of the financial crisis in Ukraine.

STRATEGIC AND ECONOMIC DISPROPORTIONS IN NATIONAL

Figure 7 - The financial performance of enterprises, million UAH (Source: Macroeconomics-2017: forecast by leading economists of Ukraine)

At the end of 2015 all three world most respected credit rating agencies – Moody's, Fitch and Standard & Poor's raised by one point the long-term credit rating of Ukraine from the default to CCC. So, in 2016, the growth of Ukrainian economy amounted to 1% after the 10% reduction in 2015. The World Bank forecasts Ukraine GDP growth at 2% in 2017 due to the progress of reforming public finance, debt management, energy subsidies and the national banking system (What awaits Ukrainian economy in 2017?). This process looks optimistic on the background of hryvnia devaluation in late 2016 – early 2017 and cost-push inflation caused by the minimum wage raise. It is quite probably that by the end of 2017 US dollar will be within the corridor 30-35 UAH. The National Bank continues to look for opportunities to build up gold reserves, while the government is seeking opportunities for new loans or the extension of old ones. Therefore, in 2017 on the hryvnia exchange rate will impact the fluctuation of prices for our exports and the parity price between goods, which we traditionally export and import. In particular, during the period from 2014 to 2016 the number of businesses entities declined by 18.3%, from 1.37 mln to 1.1 mln (Figure 6). Among them, the number of private entrepreneurs has decreased by 27.5%, farms – by 12%. In 6 months of 2016, industrial production grew by 2% as compared to 2015, and the agriculture’s growth reached 2.3 percent. Construction in 2016 increased by about 14%, but noteworthy, the number of foreign investors decreased threefold – from more than 2 million in 2014 to only 676000 foreign companies today (Fled from Ukraine 68% of foreign investors - they are not inspired by “European reform”).

Conclusion

The current situation in Ukraine shows all the signs of a systemic crisis – the crisis of basic relations in social, economic, political and legal spheres on which the current model of development has to rest upon.

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017

In order to ensure the national sustainable economic growth it is necessary to increase production efficiency which is often based on the increase of GDP rate accumulation at 25- 30%, also increasing the dynamics of investments.Incurred losses forced Ukraine radically revise not only the doctrine of national security and its place in the geopolitical and economic spaces, but also their own paradigm and the model of socioeconomic development, especially as to the national humanitarian policy. The current political and economic model has no mechanism for efficient use of production capacity to ensure sustainable economic growth, and does not create effective market institutions forms of relationships between economic agents. All this taken together led to the formation of fundamental reproductive imbalances and contributed to the transition of the acute phase of the crisis to long stagnation.In general, Ukrainian economy is deeply integrated into the world economy: it is export-oriented and at the same time heavily dependent on the import of quite many goods and services. Therefore, all further forecasting of Ukrainian economy development has to be alligned with the forecasts of the world economy trends. In fact, such predictions are being implemented by the National Bank of Ukraine in the monetary policy development and we believe that realizations of such priorities will support Ukraine economy’s breakthrough in the nearest future already.

References

Fled from Ukraine 68% of foreign investors - they are not inspired by “European reform”. Mode of access: http: //www.politnavigator.net/iz-ukrainy-sbezhali-68-inostrannykh-investorov-ikh-ne- vdokhnovili-evropejjskie-reformy.html Inflation, exchange rate and GDP. What awaits the Ukrainian economy in 2017 [electronic resource]. - Access: http://espreso.tv/news/ekonomika/ Kovalenko V. V. (2005). The Influence of monetary policy on economic growth in Ukraine. Bulletin of the Ukrainian Academy of banking. # 1(18). 9-14 Macroeconomic Review of Ukraine: different rates of recovery [Electronic resource] - Access mode: https://inventure.com.ua Macroeconomics-2017: forecast by leading economists of Ukraine [electronic resource]. - Access: http://forbes.net.ua/ua/selfeducation/reports Strategy of economic and social development of Ukraine for 2004-2015. - Access: old.niss.gov.ua/book/varnaly/005.htm The Ministry of economic development and trade of Ukraine. Official web site [electronic resource]. - Access: http://www.me.gov.ua The national Bank of Ukraine. The official Internet-representation [electronic resource]. - Access: http://www.bank.gov.ua The official website of the State Statistics Service of Ukraine [electronic resource]. - Access: http://www.ukrstat.gov.ua World Development Indicators [Electronic resource] // The World Bank: World DataBank. - Mode of access: http://databank.worldbank.org/

Paper submitted 06 June 2017 Paper accepted 21 August 2017 Paper published online 09 October 2017

TNCS AS A FACTOR OF GOVERNANCE MODERNIZATION IN THE XXI CENTURY

Arkhipov Aleksey

South Federal University, Rostov-on-Don, Russia

Eteri Rubinskaya

The Russian Presidential Academy of National Economy and Public Administration, South Russia institute of management, Rostov-on-Don, Russia

In the research we have analyzed the approaches to theoretical definition of transnational entrepreneurship along with the conditions for its formation and spread. We also attempt to determine the economic efficiency of network organization of transnational business under the conditions of global economic instability and the need for permanent development. The major problems related to the interactions of corporations and states are outlined, and the potential development scenarios for these relations are suggested. The role of today’s transnational corporations in international capital flow and international labour distribution is explained; the meaning and value of such corporations for the world economy is assessed. The authors also offer for consideration the stages in Russian transnational entrepreneurship development along with recommendations concerning the development and implementation of national economic strategy taking into account the weight of transnationalization factor and the priorities of economic security.

Keywords: transnational entrepreneurship; transnational corporations; network business; international distribution of labour; state regulation

Aleksey Arkhipov

Doctor of economy, professor in Southern Federal University, Russia, member of Expert Council of the Highest Attestation Commission under Russia Federal Ministry of Education and Science. His scientific interests include international financial market, international movement of capital, international migration, economical geography, multinational business; he published more than 170 researches in Russian and International journals; participated in 110 conferences; prepared 29 training manuals for MBA and PhD candidates.

Rubinskaya Eteri

is a candidate of economical sciences (since 2004); PhD – candidate in Russia Presidential Academy of National Economy and Public Administration, Rostov-on-Don, Russia (since 2012) where she also serves as a senior lecturer in the Global Economy Department. She is an visiting expert in Rostov region government of the. As an outstanding researcher, she has been the recipient of a Fulbright Visiting Scholar grant at Boston College (the USA). Her science interests are focused around international economics. Since 2006, she has been research the

problems of international labor migration. She published more than 40 articles in Russian federal and international journals, 6 training manuals for students, 2 monographs; participated in 35 International scientific – practical conferences and workshops.

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017

Introduction

Contemporary activity of transnational business (separate representatives of which today are economically more powerful than some national economies) is changing the regularities and rules of global markets’ functioning and is introducing changes in the world economic relations. Activities of transnational entrepreneurship, separate representatives of which are economically much more powerful than some national states, are transforming the regularities of the world market functioning, thus impacting significantly the traditional world economic relations and ties. Corporations today are establishing transnational networks for their production and distribution, thus stimulating the establishment and development of new forms of international economic relations, and these changes in international economic relations demand from the states to change also, namely, in part of regulatory instruments, in order to form radically new efficient infrastructure of updated regulatory competences. Current trends in the world economy’s development, on the one hand, prove the vital importance of transnational corporations’ functioning for economic stability. This finds manifestation, for example, in a range of crisis measures taken to rescue national corporations during 2008-2014 in many countries. And on the other hand, since early 2000s it gradually became obvious that even developing countries can become quite successful provided their transnational corporations are actively fighting traditional leaders at global markets. Such examples became excellent motivation for national governments in their support for national large business’ foreign expansion and intervention. Transnational entrepreneurship is an important and integral part of contemporary world economy within the system of which capital, labor force and technologies are constantly circulating internationally, thus forming efficient and globally competitive transborder chains of supply and production. All economic connections and interactions related to transnational business already proved to be much more efficient than traditional market relations and mechanisms. In order to study the economic efficiency of transnational corporations’ performance along with their role in the system of global economy, and also corporations’ interaction with national states, we need to start with theoretical grounding of the reasons behind business transnationalization as such, using both already historic approaches and also contemporary ones in evaluation of transnationalization factors’ dynamics.

Literature review One of the first economists to dedicate attention to international migration of capital and formation of transborder production & distribution system was the famous English economist John Stuart Mill (1863). He came to the conclusion about the profitability of granting credits to foreign countries for their future sales and also about the profitability of producing some goods abroad instead of domestically. Mill also proved that crediting foreign buyers and creating enterprises in other countries in order to get cheaper raw materials and semifinished goods needed for own production inside a country which is exporting capital, is actually promoting the expansion of foreign trade. Later on, the most prominent representatives of the Stockholm School (neoclassical economics), Eli Heckscher and Bertil Ohlin (2007) took up Mill’s ideas and developed them further in their theory of production factors. More specifically, Heckscher grounded the

TNCS AS A FACTOR OF GOVERNANCE MODERNIZATION theorem that in the process of international exchange of goods and production factors there arises a tendency for prices equilibrium in various countries. Ohlin explained the movements in production factors by the uneven demand for them in different countries. Capital tends to relocate to places where its marginal productivity is higher, while borrowed money capital the marginal productivity of which is determined by the borrowing rate, tends to move from the countries with lower rates to the countries with higher interest rates. John M. Keynes (1946) stated that capital movement abroad may be extremely attractive for the private sector, but not for the state, neither for the government, due to damaging consequences from capital relocation for economic growth, employment and balance of payments. In this regard, he also emphasized that state regulation over capital movements abroad is really vital, and capital movement should be limited so that to keep the positive trade balance. In his opinion again, capital flows should balance the movement of commodities and services: countries with current trade surplus normally export capital, while countries with trade deficit have to import capital. In the same vein, English economist Sir Roy F. Harrod grounded that capital outflow from a country has much more impact if this country is experiencing an economic slowdown. At the same time with him, the American economist E. Domar managed to find a correlation between capital outflow, economic growth rates and also foreign as well as domestic investments’ rates. More specifically, if domestic investments are growing quicker than foreign ones, than the trade balance of a country would be positive, thus, this country would be able to sell capital abroad. And on the opposite, higher rates of investment flows from abroad stimulate capital import, sometimes in the form of imported commodities (Keynes, 1946). Marxists usually explain capital import by its relative excess in a country. Karl Marx (1892) himself understood this relatively excessive capital to be in commodity, production and money forms, and its use in a country of origin, under excessiveness, would thus lead to lower average rate of return. Further, V. Lenin (1916) grounded the necessity for capital outflow from a country in a situation when monopolies fail to find the ways to use it wisely in a country of origin (which Lenin in this case called, of course, “imperialistic countries). In the second half of XX century due to growing numbers and role of transnational corporations, the researchers studying them came up with the idea that capital outflow in the form of direct investments has a wide range of advantages for corporations. For example, Demsetz (1997) suggested a model of advantages to describe the conditions of foreign companies’ (investors’) activity at the markets of imperfect competition which usually have the following features: - imperfect market of commodities due to product differentiations, availability of special marketing capacities and skills, or a collusion of market participants regarding prices; - imperfection at the market of production factors due to patent protection on some technologies and also copyright on important know-hows, which is partially caused by different levels of access to capital, and also differences in managerial and engineering skills; - internal and external savings due to economy of scale; - market distortions caused by government’s intrusion in production and/or trade processes. As a result of all these factors’ impact, a foreign investor acting at the market with imperfect competition, finds himself in rather unfavourable conditions, as compared to local firms. Thus, in order to reach success he/she simply must have serious competitive

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 advantages over the local companies, so that he/she can get profit as some sort of compensation for the investment risk (Borman, 1992). J. Dunning (2000) introduced a model of corporation’s actions in the field of foreign direct investment, which is now known as “eclectic model” (or paradigm). In it, Dunning managed to combine all previously known concepts of foreign direct investments. According to this model, a firm/corporation would be able to initiate production of goods or services abroad provided there are three favorable preconditions for that: The firm has its own, specific competitive advantages as an owner. The country of planned investments also has its own, local advantages. The firm has maximum strengths in its in-house relations or high level of internalization enabling full control over own competitive advantages. Thus, the analysis of scientific approach to the determination of factors, forces and conditions of transnational corporations’ functioning leads us to outlining the following regularities. At the initial stage of corporations’ development, the attempts to provide theoretical grounding for their activities fully complied with both actual and research trends related to the world financial infrastructure formation and international migration of capital in its development dynamics. Obviously, there were objective reasons for that: the very process of foreign branches and corporate subsidiaries’ establishment has been directly correlated with the process of foreign direct investment. At the same time, financial liberalization, which in the middle of XX century already unified the rules for capital markets’ functioning (at least, for major macroeconomic systems), only strengthened this correlation between corporate expansion abroad and foreign investments. Thus, large business has lost many of its opportunities to get supernormal profits only by means of transborder relocation of capital. Therefore, corporations were forced to look for new ways to raise their economic efficiency which could be both external (due to exploitation of advantages from various macroeconomic systems within the same production process) and also internal (organizational structure changes, new peculiarities of corporate management, redistribution of technologies and markets’ incorporation).

The potential of state regulation within the dynamics of transnational corporations’ development Application of traditional measures of economic regulation in relation to transnational corporations would be highly inefficient on the side of national governments. For example, financial levers (such as the refinancing rate, reserve ratio established by a central bank etc.) are capable of influencing the national economy’s sectors and also local business activity through the financial market indicators. However, as applied to transnational businesses these levers would turn to be inexpedient due to the fact that TNCs on the way of their corporate development are able to attract any resources from any market which seems to be more comfortable and liberal to them. And further, corporate structure would simply redistribute these required resources through its intra-group channels. Taxation instruments, traditionally efficient within a national economy, turn to be much less efficient (or inefficient at all) under globalized conditions, primarily because any corporations has an option to export its profit, capital or other assets to another jurisdiction (the one with much liberal taxation regime, for example). In such a case any administrative and/or legal instrument of influence upon the economic performance of a corporation

TNCS AS A FACTOR OF GOVERNANCE MODERNIZATION demonstrates numerous bottlenecks and gaps, thus proving their imperfection in principle (Velyaminov, 2004). The major reason why national states have lost their opportunities to regulate transnational entrepreneurship activity is that the state, in their attempts of economic regulation, are still using the old mechanisms and tools which are supposed to influence the MARKET, while inside the targeted transnational companies market relations do not exist as such. According to some estimation (Gradobitova & Isachenko, 2009), transnational intra- group transactions today cover about two thirds of all economic operations in the world, and the share of these intra-group operations in the world trade of goods and services is still rapidly growing. Within globalized economy and due to TNCs’ activities the central institute of market relations is being transformed – that is, the commercial interest. At the early stage of capitalistic relations the natural itch for gains and profits used to stimulate entrepreneurship in the creation of new forms and fields for their commercial activity as well as to optimize the existing production processes so that to cut spending, to invest in advertisement in order to increase sales of the readymade product and thus to increase the market share and so on. But in the early years of our century large businesses have started to turn gradually to the concept now widely known as “corporate social responsibility”. The idea of social responsibility of business emerged in Western economies back in the XX century (Omae, 2001; Pinto & Vincentini, 1998), mostly because due to rapid market development and globalization of world economic relations, many problems related to welfare and social justice as well as material inequality became so evident and painful that it became clear that traditional economic rules and market economy, even (especially) at its global stage of development, are not able to solve these problems in the traditional ways. Capacities of a state due to its financial dependence on the efficiency of local large enterprises’ functioning were too obviously limited and inefficient when it comes to solving social problems. In this situation corporations somehow agreed to take care of part of these social problems, and in parallel to that, they also started to propagate this social responsibility demonstrated by them. This new responsibility was presented as some sort of new competitive advantage, as a promotion tool or as a means to strengthen the loyalty of customers and maintain the market share. Therefore, at the end of the previous century we witnessed how social responsibility gradually established itself as a new form of business interest. Corporate spending on social problem solving (environmental protection, general literacy increase, labor safety at local enterprises etc.), on the one hand, did not have obvious commercial explanations and motivations, because indirectly they also helped raise the efficiency of corporate performance overall (due to positive image formation but not only). On the other hand, the implicit approximation sign between “socially responsible business” and “successful business” has been indeed transforming the essence of commercial interest as a fundamental feature of production relations. At the beginning of the new century corporations are doomed to be socially responsible in any case, consequently, their indirectly imply that state powers are not capable anymore to solve these problems and to narrow the existing gaps in the market. Thus, we can state that the market trying to solve the problems originating in itself actually is tremendously far from the market once described by the classics of economic theory. Under these new, changed relations, the state, first of all, literary comes to terms with admitting its own inability to regulate market relations further and, inter alia, overcome the

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 gaps in market economy. Secondly, social responsibility of business itself turns from being an additional load on business to being a social and business norm, and then – to being an instrument of pressure on both competitors and local public authorities. Social responsibility transformation into a commodity or into a new form of competitive advantage actually does not help solving social problems (which are accumulating and getting more serious) but it is already able to influence the global distribution of economic powers, the structure and directions in international trade and production factors’ movement. On the one hand, the state is shifting a large share of its budget responsibilities on the private sector representatives (first of all, those related to environmental protection, healthcare, education, pensions), but on the other – the state, simultaneously, is losing its regulation rights and powers. And the potential consequences of these trends are rather foggy and blurry. For example, if we fully entrust large business with much influence in the fields of science and education (mainly through the establishment of corporate research centers and universities), the state would quickly lose the innovation potential (which is supposed to be nationwide, actually). In this case we face a serious risk that all creative and intelligent labor force would be working not on alternative fuels development or inventing new medicine, but merely on the improvement of mass consumption goods. More valuable projects, of fundamental nature and directed at leap-frogging growth of innovative and high-tech economy, would be less interesting for business actors, and noteworthy here, the larger is the business – the less interest it has to novelty. Even the most technologically advanced corporations in the world spend much more time not on the development of brand new products and software, but on the protection of products they already have and are actively using (and selling). Also, much more efforts are dedicated to promotion of universal copyright standards which are supposed to protect the intellectual property of corporations (Barlow, 1996). Secondly, “socially responsible” business is actually widening the gap between the state and corporations, and the latter at this start looking much more attractive to consumers than the former. Thus, if we imagine a socially responsible corporation, taking care of its employees and also of consumers, it would be rather difficult to determine its potential interrelations with pension’s funds, or insurance companies, with education and medical centers. All infrastructures needed for their successful functioning would be established and sponsored by a private company; therefore, the results of their functioning would be also distributed according to the internal policies of this company. Thus, we can make a conclusion that if the state entrust private business with the protection of their own workers (for example, through establishment of corporate policy units, army or fleet), this would mean that the state purposefully turns itself into some sort of social atavism. The detailed structural overview of the most recent global trends allows us forecasting further developments of globalization and transnationalization. Initially, globalization was oriented on transnationalization of production factors, and first of all, capital (through the creation of the world financial system), and also land, natural resources and then markets (including the labor force market). This has found its manifestations in the constant demands and appeals for liberalization and democracy spread,

TNCS AS A FACTOR OF GOVERNANCE MODERNIZATION protectionist barriers’ removal and universal deregulation of market relations worldwide. Transnationalization of production factors was fully implemented in/by transnational corporations of the latest generation which became the best example of a production being totally detached from national economy’s functioning. At the same time this last generation of corporations is operating within the frameworks of common transborder production, thus taking full use of the advantages of dozens of states and territories. Production factors’ transnationalization has been accompanied by the process of their universalization. The major reason for this universalization has been the emergence and global spread of specialized infrastructures, including those technology- and information- based ones. Without that, the final universalization of production would lose both its sense and its implementation capacities. Information economy implies the universalization of consumer behavior, inter alia, and also that of production standards, rules of production factors use, including those related directly to capital and labour force. Overall, universalization became the logical final stage of globalization, the final result from full and active use of global economic advantages and trends. Today, to these emerged economic universes we can attribute the universalization of the language of business communications, the currency of international trade, the formats of information exchange, standards in business education, the presence and popularity of global brands, and most explicit trends at consumer markets. This universalization became possible, first, within the world trade, and in the form, described long ago by the pioneers of economic thought. Later, universalization has found its way to transnational production, and then to the world economy in a wider sense. Universalization would soon become that tool for the globalization to destroy all national peculiarities and diversity within the world economy as such. Thus, factors limiting further development and growth of globalized production would be also destroyed. It would be logical to assume that full “levelling” of the world and creation of absolutely identical production conditions would also go against the economic interests of corporations themselves. Simply because economic powers and global competitiveness of corporations are actually based on simultaneous use of various contries’ unique competitive advantages within the common production process. Having well established and tuned intracorporate cooperation and efficient networking, corporations actually are supposed to strive to keep the roles of states in their status quo, because they are actively exploiting the unique production factors of these states which they managed to detect at the early stages of globalization development. Thus we can assume that universalization, in fact, would become the final process in production factors’ transnationalization and most probably, it will return these factors back to “their roots”, that is, to the initial conditions of their functioning within national economies and national markets. Therefore, globalization today is merely an instrument for national peculiarities’ liquidation. This means globalization does not make the world more equal – it simply makes it less diverse! And universalization as the final stage of globalization is seen here as the means to establish some sort of “global sameness” through spread of common production standards initiated by the world leaders in industrial production (and these would be corporations, of course, which later would get the maximum advantages from this universalization).

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017

Imagine the world left without any public regulation as such, without radical differences in the levels of social or cultural developments, with the common market rules in all places etc. In such a world, clearly, the role of TNCs and large business overall would be determining. If back in the XX century corporations were trying to use the unique national production factors so that to create their own supranational chain of consumer value, in the current century consumption as such is totally detached from national markets. Today, global in nature are not only markets of capital or labour force, oil market or non-ferrours metals market (these, most probably, would soon become again rather local, actually), but also the market of consumer goods and services. This can be treated as the final stage in TNCs’ evolution and the final stage in the whole development of the world economy. Once the world prices become also universal (same prices for bread, or a car, clothes, education services or airplane ticket, for example), this would again split the world apart. But not on Global North and Global South (as it is still now), but between the branches of global corporations – those involved in raw materials supply and those involved in readymade products manufacturing. Therefore, instead of states and cities we would get the centers of corporate networks, inhabited by various specialists and united by the common, global information network. And each of these centers would get its own level of welfare, according to the status of a particular center. Already today, there is a notion to describe this stage in human civilization development – glocalization. However, today, glocalization is still being interpreted is yet another regularity in economic activities’ concentration in the developed countries to the disadvantage of the countries with follow-up development. To this understanding of glocalization we can already add some new, recently emerged features of economic relations development: The states are finally turning into merely formal actors in intercorporate and intracorporate relations, losing all their powers to impact the economic processes. Even the most traditional state responsibility – legal infrastructure and support for businesses and the market – today, at the stage of ongoing glocalization, is being transformed into some sort of corporate conduct code. Moreover, the function of a watchdog over the compliance with this code of conduct also belongs not to the state, but to some sort of a specialized unit, fully affiliated to TNC. World economy is gradually turning into a conglomerate of local production markets. This conglomerate includes local raw material markets with their rather strict and rigid conditions of functioning, and also the global market of consumer goods and services which is common for all but at the same time fully controlled by transnational corporations. Many economists and sociologists today speak about the mobility of production factors and the speeding up of this mobility (Ushakov & Kharchenko, 2017). But in fact, mobility of production factors is gradually being substituted by their virtualization. The final result of this ongoing virtualization would look as follows: there will be a common, global market of information (which would indeed be the central, the core production factor), while capital markets and labour force markets would be localized, getting again regional, with rather fixed conditions for functioning and specific, local infrastructure. World trade would fully transform into being intracorporate, thus becoming yet another corporate network structure. Therefore, the institute of market pricing would be liquated due

TNCS AS A FACTOR OF GOVERNANCE MODERNIZATION to its complete irrelevance, while all consumer markets worldwide would lose their specific features and gradually become completely identical. Transnational corporations at the early stages of glocalization already have managed to consolidate the global sector markets and thus get nearly unlimited opportunities for rapid growth of their own profits (Ushakov, 2016). Now their raw materials spending are being formed at local markets primarily which have a range of rather stable advantages. While profits from readymade products is determined by world prices for consumer goods, and these world prices in fact have very little relation to the size of actual production spending and real costs. Today TNCs are mostly using the advantages from their own capacity to accumulate the advantages from dozens of local markets under the consolidated production process. But in the near future they would also get an additional opportunity – to stimulate their financial growth using the differences between the actual growth of population income on one hand and world prices at consumer markets on the other. The global market of consumer goods and services, most probably, would not allow local producers’ functioning as such, especially in the fields related to the most widely spread consumer goods, like FMCG. Besides that, quality standards reinforced by corporations would be on the level high enough to guarantee that neither small, nor medium- size enterprises are able to have any competitive advantages. Thus, local small and medium- size businesses would in most cases lose the very right for independent commercial activity as such. Therefore, national states being seriously limited in their opportunities for transnational business regulation, today already and most probably in the future as well (provided the world keeps on developing by the globalization and transnationalization scenario) would gradually lose its role of economic relations regulator. Thus, today’s states need to implement a range of measures aimed at modernization of their economic regulation capacities so that to be able later to form totally new types of interaction with representatives of transnational large entrepreneurship, and these new capacities, just like business processes inside TNCs, should be based on the principles of networking and total informatization.

Concluding remarks The research carried out on transnationalization of the world economy allows us make several conclusions of both theoretical and practical value. Transnational entrepreneurship today is an integral component of the world economy guaranteeing the international movement of capital, labour force, technologies via its transborder production and supply chains, and this movement and exchange prove to be more efficient than by means of traditional market mechanisms. Explaining transnationalization from the theoretical science standpoint, we can determine it has at least two stages in its historic development. At the first stage the causes for entrepreneurship transnationalization were stemming from specific functioning conditions at production markets in various countries and also from the multisystemic nature of the world financial market under which differences in national financial systems allowed getting extra profits for newly established and developing transnational companies. Supporters of economic liberalism and also socialists agreed then on the following: the major cause of transnational corporations’ origin lays primarily in the multimodality of the world economic system which provided vast opportunities to maximize profits using the very structure of the world economy.

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Since the second half of the XX century we observe a radical shift in theoretical studies and general view on transnational entrepreneurship in favour of more attention to finding the sources for competitiveness and economic efficiency, and this is fully in compliance with economic science top trends overall. The life cycle model by R. Vernon, internalization theory by Buckley and Casson, the concept of investment development by Dunning – all defined the cases for companies transition to the transnational level of economic management related, first of all, to internal organization of transnational business and companies’ opportunities to accumulate the advantages of various macroeconomic systems within one common production & distribution process, forming their own internal markets and resisting state regulation (namely, taxation and customs duties), extending the life cycle of their products through their transfer between the local markets. Another important feature of transnational companies is their capacity to incorporate market relations so that to create their own internal markets which are then functioning in a manner very different from traditional markets due to active use of transfer pricing and corporate protection of its own internal environment from external impacts (including state regulation, sectoral competitiveness and sudden changes in consumer demand). Lower capacity of state regulation over transnational entrepreneurship is explained by the fact that states in their attempts of economic regulation are using the mechanisms of market impact, while inside transnational companies market relations are already seriously transformed and the functioning is based on completely different regularities. In parallel to this, another emerging trend is also limiting the powers of state regulation – that is the intensive transition of social functions to corporate structures (through the phenomenon of corporate social responsibility). Besides that, many market gaps, previously bridged through government efforts, today are better solved through corporate relations due to informatization and virtualization. This is yet another proof for the necessity of modernization of the state as an economic relations actor as well as of its principles and competences. Analyzing the historic forms and the current trends of globalization allows us drawing a crude scenario of further progress in world economic relations, leading to further transformation of world economy into some sort of conglomerate of local markets of industrial product (including raw materials) under fixed functioning conditions. At this, mobility of production factors is substituted by virtualization of information in parallel with localization of capitals and labour forces, while world trade is gradually turning into intracorporate movement of material values. Within this variant of world economic progress, the states would finally turn into merely formalizers for intercorporate interactions, losing their most meaningful and forceful instruments of economic impact. In order to avoid the pessimistic development scenario in further global economic development (which is potentially possible as a standoff of information economy vs. network economy), the state already today must be able to offer to all market agents and actors, including first of all transnational companies, its new, updated regulatory functions which must be based on the latest and most advanced technologies (and at the same time these functions are supposed to promote further development of such truly innovative technologies). Technologies would strengthen the efficiency of state functions aimed, for example, at support of certain social strata or at stimulation of top-priority sectors’ development etc. Creating a nationwide (and later on – global) database would lead to better targeting in state subsiding programs, in pension payments and so on, while development of network

TNCS AS A FACTOR OF GOVERNANCE MODERNIZATION communications and integration of communications and financial sectors would lead to full automation of the very process of transfer payments addressed directly to population. On the other hand, introduction and further full functioning of network communications assume full (or nearly full) transparency of economy and of relations between the companies inside it, relations of business and consumers and that of business and the state. Transparent (not absolutely, of course, but to an appropriate extent) and at the same time high-tech economy not only loses its information asymmetry but also helps cut public spending on state machine employees (first of all, on those now involved in various controlling functions performance). At the end of the previous century economic regulation as such was operating on the principles of “catching up the leader”, and corporations during those days were trying hard to develop strategies to limit the economic role of the state, while national governments were trying to establish the legal and economic environment which would have work against these limitations, thus the limiting powers of business used to be rather short-term and relative. In this process the state more and more often became the outsider, while large businesses, especially those introducing innovations in their production processes and those which already have some sort of transborder networks, became pioneers in many new economic and social beginnings. Therefore, today, under the conditions of ongoing transnationalization and informatization of economy the state (if it wants to keep its regulatory powers and remain existent as such) needs to create new and rather universal space for further economic activity which must, from the very start, be more efficient and more high-tech. And only within the borders of this universal space the state would be able to save its leading role of a competent regulator. Integration of any country into the world economy, its implementation of crisis- overcoming measures, setting a brand new strategy for further business progress based on innovations, radical modernization of economic relations, repositioning of a country on the global scale and at the market of labor distribution especially – all of this demands the development of new principles and rules for further communication of the state with the representatives of transnational business. Revised state regulation over TNCs performance must be based on two key principles: national affiliation of a corporation, and commercial interests of foreign TNCs trying to enter the national market. The policy of favoring absolute transnationalization making no difference between external expansions of own corporations and active spread of foreign large businesses at local markets is not only illogical, it can actually turn to be economically damaging. Foreign expansion of national large business indeed promotes the establishment of infrastructure, but later on this infrastructure serves the purposes of intensive export of raw materials abroad, same with national capital which quickly disappears in the offshore zones in order to avoid taxation. Thus, there must be established some sort of sectoral filter with a set of “checkpoints”, only after complying to which national corporations can expect state support for their foreign expansion. Among these “checkpoints” we can, inter alia, mention the most important ones: strong innovative component in production and business operations, the capacity to not only generate innovations but also sell them; strong social responsibility; transparency in most of operations; the catalytic effect of operations (that is, the ability to attract investors and motivate the development of accompanying businesses); global competitiveness of a product; persuasive prospects for foreign expansion which take into account the specific features of the markets which this business plans to invade.

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Relationship of the state with foreign TNCs must be developed taking into account the strategic priorities of the latter. Transnationalization of economy is inevitable, and the state must admit this fact. Thus, any national state must, first of all, reset its priorities in accordance with the TNCs interested to enter and further develop at the local consumer market. Consequently, the state must make extraction and further export of natural resources less profitable than, for example, establishment of new enterprises for further “simple” production. Achieving these aims would be possible, for example, through establishment of quotas, the exact share of extracted natural resources which must be sold or used directly at local markets, not exported. Setting this quota high enough, the state would thus make the export of natural raw materials significantly less profitable and at the same the costs of these natural resources for local economy will also go down. The latter would become additional stimuli promoting the development of national branches and sectors involved in both “simple” and “complex” productions. While attracting new foreign TNCs, interested to enter the local consumer market, the state must rationally assess all potential outcomes from their activity in the local field, taking into account, inter alia, the potential volumes of exports of the locally produced goods which could at the same time: a) open up new sales markets for these foreign TNCs; b) diversify national exports at the same time; c) and overall, improve country’s positioning on the global scale as a successful exporter. All three positions may lead to the attraction of the so-called “network investments”, that is, further capital attraction provoked by the establishment of inviting infrastructure in the country. At this, the state must by all means support the initiatives of entering TNCs which might lead to these network investments, thus contributing to local business infrastructure and providing other related support which should be fairly measured depending on the strategic importance of a particular business. The suggested here approach is based on marking principles and in particular, on the instruments of business loyalty formation. In our view, this is the most efficient method to establish and maintain interaction between national state and transnational large business, since this approach is able to cover the interests of both sides at the same time. On one hand, corporations get additional advantages which further can be converted into the competitiveness of new products. On the other, the state is able to set and regulate the compliance between the dynamics of transnational business growth and strategic interests of national economy. Finally, the suggested algorithm of national economy’s integration with the market of transnational capital would in itself be the manifestation of adequate relations set between the state powers and the representatives of transnational entrepreneurship. This, in turn, would guarantee the state has efficient interaction with world markets, and the national economy complies to the most actual trends of the global environment development. Thus, the state would be able to strengthen its role as a global economy actor, and this, in turn, would have its positive impact on political sovereignty too. The state thus would be able not only react to the consequences of global dynamic changes, but also would be able to influence and participate in the world economic processes.

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Paper submitted 21 April 2017 Paper accepted for publishing 18 July 2017 Paper pubslihed on-line 30 November 2017

VIETNAMESE ECONOMIC RELATIONS WITHIN AEC

Hung Tran Van

Vietnam National University of Forestry, Ho Chi Minh, Vietnam

Ai Tran Huu

Van Hien University, Ho Chi Minh, Vietnam

Vietnam has made impressive progress in economic growth during the past two decades, but national efficiency and competitiveness are growing slowly because the foundation for development has not been strengthened. This paper analyzes Vietnam's economic situation for the period 2005-2015, namely, per capita income, trade performance, investment and labor productivity indices of Vietnam and other AEC countries. The analysis is based on Vietnam, IMF, ASEAN and AEC statistics.

Keywords: trade, investment, labor productivity, economic growth.

Introduction

The Association of Southeast Asian Nations (ASEAN) was established on 8 August 1967 on the basis of Bangkok's declaration of five original member countries – Indonesia, Malaysia, the Philippines, Singapore and Thailand. After more than 40 years of its development, the ASEAN now is a regional intergovernmental organization, uniting 10 countries (Brunei, Cambodia, Laos, Vietnam, and Myanmar joined later). In 2015 ASEAN moved to the next stage of regionalization by forming the ASEAN Economic Community (AEC) that has to become a stable, prosperous, highly competitive economic sector with free flows of goods, services and investments. This creation of an economic community totally complies with the global development trends, other examples of which are the European Union (EU) or in the Commonwealth of Independent States (CIS). Since joining the ASEAN in 1995, Vietnam has been taking seriously the implementation of its trade and investment agreements within ASEAN and has contributed a

Hung Tran Van

Vietnam National University of Forestry, Ho Chi Minh, Vietnam Research interests –SMEs functioning and government support, consumer behavior, innovative products markets Published more than 20 papers in International journals E-mail: [email protected]

Ai Tran Huu

PhD, lecturer of Faculty of Economics, Van Hien University, Ho Chi Minh City, Vietnam Research interests – markets of agricultural products, SMEs functioning and government support, organic food markets, ecological economics, environmental issues of economic development and corporate social responsibility Published more than 50 papers in International journals, member of editorial board of International journals E-mail: [email protected]

VIETNAMESE ECONOMIC RELATIONS WITHIN AEC great deal to all ASEAN economic development programs. However, Vietnam has not escaped the position of the poorest country in the region, even though its participation in the ASEAN Economic Community (AEC) creates more opportunities and challenges for the country. Therefore, in the context of this ongoing integration it is required to timely change the all related mechanism and policies, to remove and/or prevent difficulties for local businesses and to create a healthier competitive environment overall. Thus, the authors carried out this study with the objective to assess the current state of Vietnamese economy in relation to the AEC and to propose recommendations on enhancing Vietnam's position within the AEC.

Data sources and research methods

The article uses the secondary data sources which were collected from both national and international organizations (data on national income, per capita income, Vietnam's export-import turnover within the AEC, FDI flows from other ASEAN countries to Vietnam, evaluation of business regime; FDI policies in other ASEAN countries, labor productivity of the ASEAN countries).

The current state of Vietnam's economy in relation to the AEC

The ASEAN is currently the 7th largest economy in the world with the total GDP of US $ 2962.9 billion (as of 2015).

Table 1 - GDP of ASEAN countries at current prices (billion US$) (Source: IMF’s World Economic Outlook database)

Countries 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Brunei 9.5 11.5 12.2 14.4 10.7 12.4 16.4 16.6 16.5 16.8 17.5 Cambodia 6.3 7.3 8.6 10.4 10.4 11.3 12.9 14.2 15.7 17.3 19.1 Indonesia 285.8 364.4 432.2 510.8 538.8 709.5 846.2 878.2 946.4 1,032.4 1,129.9 Lao P.D.R 2.7 3.6 4.2 5.3 5.6 6.9 8.3 9.2 10.3 11.2 12.3 Malaysia 143.5 162.7 193.6 231.1 202.3 246.8 287.9 303.5 327.9 353.2 381.3 Myanmar 12.0 14.5 20.2 31.4 35.2 45.4 51.4 53.1 57.4 62.2 67.5 Philippines 103.1 122.2 149.4 173.6 168.5 199.6 224.8 250.4 284.5 315.1 344.4 Singapore 125.4 145.6 177.9 190.6 188.8 231.7 265.6 276.5 286.9 296.6 307.0 Thailand 176.4 207.1 247.0 272.6 263.7 318.9 345.7 365.6 425.0 466.9 499.8 Vietnam 52.9 60.9 71.1 90.3 93.2 103.6 122.7 138.1 156.0 170.7 184.1 ASEAN 917.6 1,099.8 1,316.4 1,530.5 1,517.2 1,886.1 2,181.9 2,305.4 2,526.6 2,742.4 2,962.9

In general, despite intensive industrialization and modernization in the region in general, agriculture still has a huge share in all regional economies. Most of the ASEAN countries do not have thoroughly elaborated economic policies, are still using unskilled and low-paid labor force, and also often depend on foreign financial resources.

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Vietnam's economy is the fifth largest in the Southeast Asia with its gross national product being around 184.1 billion USD (2015 data), or 6.21% of the total GDP of the Southeast Asia region. As compared to 2005, during the recent decade Vietnam GDP increased 2.48 times.

Figure 1 - GDP by purchasing power parity of Vietnam and other ASEAN countries in 2015 (Source: ASEAN Finance and Macroeconomic Surveillance Unit Database)

Report "Vietnam's Economic, Institutional Reform for Integration and Development 2015-2035" showed that its economy maintained a relatively high economic growth rate (6.9% during 1990-2014). Vietnam shifted from being one of the world's poorest countries to the group of countries wuth average income (GDP per capita reached US$1,844, which is 21 times higher than back in 1990). But Vietnam's GDP in comparison to other ASEAN countries is still low. GDP at purchasing power parity of Vietnam is lower than that of Indonesia more than five times; Thailand – twofold, Malaysia and the Philippines – more than 1.3 times.

VIETNAMESE ECONOMIC RELATIONS WITHIN AEC

Figure 2: Comparison of the average GDP growth rate of Vietnam in 2005, 2010, 2015 with some of the selected ASEAN countries (Source: ASEAN Finance and Macroeconomic Surveillance Unit Database) According to the ASEAN Statistics, Vietnam has already joined the group of middle income countries. During the 2005-2015 decade, Vietnam's GDP per capita grew impressively, from US$ 637 per person in 2005 to US$ 1,965 in 2015.

Table 2 - Per capita income of the ASEAN countries at current prices (in US$) (Source: IMF’s World Economic Outlook database)

Countries 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Brunei 26,587 31,469 33,102 38,445 28,237 31,982 41,662 41,703 40,647 40,973 41,873 Cambodia 455 514 603 711 703 753 853 934 1,017 1,111 1,215 Indonesia 1,291 1,623 1,898 2,211 2,300 2,986 3,511 3,592 3,817 4,105 4,430 Lao P.D.R 474 610 712 879 916 1,105 1,320 1,446 1,587 1,708 1,850 Malaysia 5,421 6,066 7,122 8,390 7,203 8,634 9,941 10,304 10,946 11,594 12,305 Myanmar 216 257 350 533 587 742 824 835 884 939 999 Philippines 1,209 1,405 1,684 1,918 1,851 2,155 2,386 2,614 2,918 3,169 3,396 Singapore 28,498 31,739 36,754 38,213 37,195 44,697 50,000 51,162 52,179 53,014 53,931 Thailand 2,825 3,296 3,918 4,300 4,151 4,992 5,395 5,678 6,572 7,189 7,664 Vietnam 637 724 835 1,048 1,068 1,174 1,374 1,528 1,705 1,844 1,965

As compared with some other ASEAN countries such as Thailand, Indonesia and Malaysia, Vietnam's per capita income is still quite low (Table 2). However, at this stage, Vietnam's per capita GDP growth rate is relatively high, and Vietnam is the only country in the ASEAN Economic Community (AEC) the GDP per capita growth rate of which has always been positive positive throughout 2005-2015.

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Thus, today Vietnam belongs to the middle-income countries’ category and is equal to Malaysia's per capita GDP as of 1988, Thailand – as of 1993, Indonesia – as of 2008, the Philippines – as of 2010, or South Korea – as of 1982.

Figure3- Per capita income of the ASEAN countries at current prices in 2015 (US$/person/year) (Source: IMF)

The ASEAN countries are very different in terms of their political development and social institutions’ functioning. While such countries as Singapore, Thailand and Malaysia have strong and developed transportation systems, well-developed subsidies’ system, developed healthcare programs, modern care services, Laos and Myanmar are sturggling with poor transportation, lack of access to communications, power outages and low-level healthcare services. This difference is also reflected in many areas such as financial markets, banking, information technology, telecommunications, infrastructure, education, health, literacy and life expectancy rates etc. According to the results announced by the UNDP (2013), Singapore and Brunei belong to the "High Human Resources Development" group, Malaysia, the Philippines, Thailand belong to the "medium high human resource development" group, Indonesia and Vietnam belong to the "the average Human Resources Development", while Laos, Cambodia and Myanmar are in the "low average human resource development". Despite the increase of bilateral trade agreements with non-ASEAN partners, the ASEAN countries do not have a general mechanism for external trade. This means that foreign companies operating in the ASEAN region have to work under 10 different legislation systems.

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Vietnam and international trade within AEC

ASEAN is the third largest export market for Vietnamese enterprises, straight after the USA and the European Union. Vietnam's export to ASEAN countries has been relatively large (22%) since 1994. When Vietnam joined ASEAN back in 1995, its export turnover to the ASEAN increased rapidly (reaching US$ 5,031 billion in 2005, and then US$ 10,018 in 2008).

Table 3: Value and growth rate of Vietnam's merchandise exports to ASEAN during 2005- 2015 (Source: ASEAN Statistics, 2016)

Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Export turnover 5,031 6,214 7,731 10,018 8,555 10,351 13,583 17,446 18,179 18,261 18,064 (mln USD) Growth rate 30.6 23.5 24.4 29.6 -14.4 21.0 31.2 28.4 4.2 0.4 -1.1 (%)

Figure 3 - Vietnam's merchandise exports to ASEAN countries during 2005-2015 (Source: ASEAN Statistics, 2016)

In the nearest future the scale and the growth rate of Vietnam's exports to the ASEAN is expected to maintain stable growth due to supporting tools’ realization (such as tariffs liberalization, non-tariff barriers removal, improved requirements on rules of goods origin; trade facilitation; customs formalities’ modernization; harmonization of standards and

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 certifications). In addition, Vietnam continues to enjoy advantages when exporting to Laos and Cambodia under the preferential agreement on import tax rates signed with Laos and the agreement to promote bilateral trade signed with Cambodia. ASEAN is a vital trading partner for Vietnam since it is the second largest source of goods for Vietnamese enterprises (after to China). In 2005, Vietnam's import turnover from the ASEAN reached US$ 8.938 billion, in 2010 – US$ 16.408 billion, in 2015 – US$ 23.827 billion.

Figure 4 - The import turnover of Vietnam from ASEAN countries, 2005 to 2015 (Source: ASEAN Statistics, 2016)

Investment activities

According to Vietnam’s national statistics data, the speed of ASEAN's investment attraction to Vietnam has increased rapidly. ASEAN investments make up about 30% of the total Vietnam FDI. Three countries (Singapore, Malaysia and Thailand) occupy the positions of the 1st, 7th and 8th respectively among the largest investors in Vietnam. In 2007, ASEAN's FDI to Vietnam reached US$ 543.2 million and in 2010 they were already US$ 1,310 million (Figure 5).

VIETNAMESE ECONOMIC RELATIONS WITHIN AEC

Figure5 - ASEAN’s FDI inflows of investment to Vietnam during 2005-2015 (Source:ASEAN Stats)

According to the data of the Department of Foreign Investment (MPI) as of 2015, 8 ASEAN countries (Singapore, Malaysia, Thailand, Brunei, Indonesia, the Philippines, Laos, and Cambodia) invested in 18 economic sectors of Vietnamese economy.

Figure 6 - Intra-regional and extra-ASEAN FDI inflows investment in Vietnam in the period 2005-2015 (Source: ASEAN Stats)

Although Vietnam has many achievements in its investment activities in the recent years, but the results are still not commensurate with the potential of Vietnam or with the performance of other ASEAN countries. Many advantages of the ASEAN are yet to be exploited, particularly those related to geographical proximity of these countries, their mutual understanding of each others’ customs and cultures, the system of preferential tariffs and other incentive policies. In addition, FDI inflows to ASEAN in general and to Vietnam in

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 particular have to face many obstacles related to public regulation as well as policy implementation at the national level (Table 5).

Table 5 - Assessment of FDI regimes and policies in the ASEAN countries (Source: Urata et al., 2010)

The Screening Total Market National Investors’ capacity and Directorate Score Access treatment move of evaluation investors Among 1 0.4 0.2 0.1 0.1 0.1 0.1 Brunei 0.394 0.243 0.795 0.434 0.590 0.180 0.180 Darussalam Cambodia 0.242 0.140 0.183 0.622 0.000 0.750 0.117 Indonesia 0.375 0.364 0.198 0.789 0.308 0.546 0.255 Lao PDR 0.428 0.392 0.410 0.608 0.250 0.793 0.245 Malaysia 0.438 0.320 0.833 0.250 0.397 0.562 0.227 Myanmar 0.481 0.378 0.401 0.921 0.399 0.714 0.463 Philippines 0.237 0.257 0.279 0.112 0.519 0.043 0.107 Singapore 0.175 0.197 0.143 0.154 0.356 0.074 0.091 Thailand 0.310 0.423 0.000 0.500 0.000 0.805 0.100 Vietnam 0.315 0.305 0.350 0.475 0.310 0.494 0.194 Average 0.339 0.305 0.350 0.475 0.310 0.494 0.194 Standard 0.100 0.092 0.272 0.266 0.193 0.296 0.113 deviation

Labor productivity status

Labor productivity is one of the important factors affecting country’s competitiveness, especially in the context of global competition, development of science, technologies and knowledge economy overall. Labor productivity of the whole society as of 2015 has been estimated 79.3 million VND (Vietnamese dong1) per employee at current prices, as compared to VND 54.38 million back in 2010. The available data indicate that the annual productivity in Vietnam has been increasing with the average growth rate of 3.45% (during 2006-2010) and later at the level of 4.33% (during 2011-2015).

1 National currency of Vietnam, 1 US$=22,500 VND (the rate as of November, 2017)

VIETNAMESE ECONOMIC RELATIONS WITHIN AEC

Figure 7 - Labor productivity at current prices (million VND / person) (Source: Vietnam Report 2015 yields, Vietnam Productivity Institute) Despite significant improvements, Vietnam's labor productivity is still far from the regional average level. According to the research by the International Labor Organization, in 2008 Vietnam's labor productivity reached US$ 7,148 / person, US$ 7,724 / person in 2010 and US$ 9,422 / person in 2015. Labor productivity in Singapore at the same time was 15.2 times higher than that of Vietnam (the 2015 rates), Malaysia's labor productivity has been 5.6 times higher, and Thailand’s – 3 times. To summarize, Vietnam's labor productivity has improved significantly, however, Vietnam still needs to take more efforts to improve its national labor productivity.

Table 6 - Labor productivity as Output per worker (GDP constant 2011 international US$ in PPP). ILO estimates and projections (Unit: US$/person) (Source: ILO – STAT) Countries 2008 2009 2010 2011 2012 2013 2014 2015 Brunei 154,400 148,256 148,798 151,420 150,112 145,740 152,939 148,911 Darussalam Cambodia 4,689 4,431 4,454 4,639 5,057 5,385 5,670 5,941 Indonesia 17,776 18,207 18,853 19,561 20,361 21,253 21,945 22,622 Lao PDR 7,474 7,826 8,266 8,761 9,222 9,785 10,305 10,793 Malaysia 48,524 46,645 48,843 49,043 49,726 49,871 51,695 52,960 Myanmar 1,661 1,731 1,805 1,882 4,481 4,790 5,138 5,503 Philippines 13,868 13,597 14,131 14,175 14,919 15,713 16,283 16,933 Singapore 124,597 121,687 133,884 137,767 137,580 141,344 142,391 143,801 Thailand 21,008 20,582 21,998 21,519 22,863 23,804 23,863 24,431 Vietnam 7,148 7,398 7,724 7,990 8,242 8,556 8,936 9,422

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Vietnam's labor quality is also not high, training is often carried out not in accordance with local business needs that mainly uses manual labor. Moreover, Vietnamese workers are very limited in foreign languages’ capacities and often lack effective teamwork skills; senior personnel (as compared to other countries in the region) are also not very competitive. The research survey carried out in 2014 by the Institute of Labor Science and Social Affairs for Manpower Group at 6000 enterprises across nine economic sectors in nine provinces and cities of Vietnam showed that a quarter of businesses surveyed admitted their employees lack technology-related knowledge and creativity, 20% noted poor ability to adapt to newer technologies, 32% of business experience serious difficulties with hiring highly skilled workers. Limitations and weaknesses of human resources are one of the major factors affecting national economy competitiveness (according to the Global Competitiveness Report as of 2011, Vietnam was ranked as 65/141, but in 2015 it was already 56/140. Particularly in the region of Southeast Asia, in 2015 Vietnam was ranked the sixth, just behind Singapore (#2 of the general world ranking), Malaysia (#18), Thailand (#32), Indonesia (#37) and the Philippines (#47).

Conclusion

Vietnam has demonstrated remarkable achievements in such areas as trade, investment, services etc. However, as compared to other ASEAN countries, Vietnam still has one of the least developed economy. In order to improve Vietnam's economy competitiveness within the AEC, we propose the following recommendations: - State authorities should continue improving the national business environment, ensuring fairness, transparency, fighting corruption and trade fraud, renewing the mode of resource allocation, step by step introducing property ownership (which is especially important when it comes to land relations), synchronizing the development of markets with liberalization of trade, reducing protection and subsidies, and removing trade barriers at the same time. Positive environment would be especially important for efficient integration of banking, finance, telecommunications services and labor markets. - Vietnam also needs to focus more on its human resources’ development strategy, especially when it comes to high-quality human resources, investing more in the skilled workforce development, in particular, by improving the quality of vocational training in the country; - Synchronous infrastructure development must be promoted so that to raise the efficiency and competitiveness of national economy, and also so that to contribute to sustainable development of imports and exports; - Finally, efforts should be taken on improving the competitiveness of national and local enterprises, reforming the public administration apparatus, improving the overall level of production and business performance of enterprises, creating more favorable

VIETNAMESE ECONOMIC RELATIONS WITHIN AEC conditions for Vietnamese enterprises to compete with other enterprises under the AEC agreements.

References

ASEAN, B. t. (2015). Vietnam Economic Growth in 2013 - Some positive bright points. Bac, N. A. (2015). Labor productivity in Vietnam today. Vietnamese Journal of Social Sciences, 5 (90). Dao, N. T. and Nguyen Thi Mai (2014). Evaluate the possibility of implementing the ASEAN Economic Community. Workshop on "new into University of Economics, University of Economics & Law. Documentation and Information Center (2014) Progress of ASEAN Economic Community: Integration experience and challenges for Vietnam. 8/2014. General Administration of Customs (2015). A brief overview of import and export activities between Vietnam and members of the Association of Southeast Asian Nations (ASEAN). May 11th, 2015. Hanh, T. D. (2014). Vietnam economic growth, a long way with many solutions. Finance Magazine. Hiep, N. T. (2015). ASEAN Economic Community 2015. Challenges and Prospects for Vietnam. Finance Magazine, No. 5/2015. Ministry of Industry and Trade (2014). Report results ASEAN Economic Minister Meeting in Hanoi 46th, Ha Noi 2014. Tam, N. T. (2014). Merchandise trade between Vietnam and ASEAN: Current situation and problems. Journal of economic issues and global politics, 12 (224). Urata, Shujiro and Mitsuyo Ando (2010), Investment Climate Study on ASEAN Member Countries, Paper presented at the ERIA Workshop, Jakarta, 22 February.

Paper submitted 10 May 2017 Paper accepted for publishing 21 August 2017 Paper pubslihed on-line 09 October 2017

STATE-OF-THE-ART AND FURTHER DEVELOPMENTS IN BUSINESS MODEL RESEARCH FOR INDUSTRY 4.0

Richard Stechow

Magdalena Mißler-Behr

Brandenburg University of Technology, Cottbus-Senftenberg, Cottbus, Germany

As the development of Industry 4.0 is predicted to disrupt the current industrial system, newer research studies need to focus increasingly on analyzing the resulting economic implications of these technological changes. One of the most important topics in this context is the influence of Industry 4.0 on business models (BM) and business model innovation (BMI), since for most firms, a change of their extant business model or a completely new business model is needed to fully capture the opportunities offered by the Industry 4.0. This paper analyzes the existing literature to identify, address and examine the major outcomes, similarities and differences of the important studies, allowing for better description of the current state-of-the-art regarding the influence of the Industry 4.0 on contemporary BMs. Based on this, reoccurring core concepts such as data-centricity, efficiency and individualization, servitization, value networks and platform-based BM are identified and their impacts as well as implications for future research are outlined. To gain additional insights, the use cases of the most prominent business model frameworks in the context of the Industry 4.0 are illustrated and compared side-by-side, highlighting their specific applications, benefits, and limitations.

Keywords: Industry 4.0, industrial Internet, business model, innovation.

Introduction

The concept of Industry 4.0, also known as the Industrial Internet of Things (IIoT) (Schlaepfer et al., 2014) can be described as the application of the Internet of Things (IoT) in the context of industrial production. Industry 4.0 can also be understood as the bundling of different disruptive technologies such as cloud computing, cyber-physical systems, big or

Richard Stechow

PhD student at Brandenburg University of Technology, Germany, interests – Supply Chain Management, Industry 4.0, Logistics, Innovation E-mail: [email protected]

Magdalena Mißler-Behr

PhD., professor in Brandenburg University of Technology, Germany, Scientifica interests are mathematical economics, business administration, and entrepreneurial economics. Published more than 50 research papers in International journals, avtively participated in more than 100 international conferences, head of international knowledge transfer and students exchange programs

STATE-OF-THE-ART AND FURTHER DEVELOPMENTS IN smart data and augmented reality along with their application in the industrial context specifically. The use of these technologies will lead to fundamental changes in production processes, including workpieces autonomously finding their way through production, manufacturing facilities mounting themselves based on the information transmitted by products as well as automated ordering of the equipment requiring replacement. To realize this, enormous amounts of data need to be collected, automatically processed and analyzed as well as incorporated into internal and external operational planning process, thereby optimizing the production process overall (Weinberger et al., 2016). Implementation of these changes is predicted to disrupt the current industrial system (Kagermann et al., 2013). While for a long time, the research in this regard was mainly focused on technologies and standards, it becomes increasingly clear for all actors today that this phenomenon will encompass significant changes on the business level as well (Burmeister et al., 2016; Kiel et al., 2016). One important topic in this context is the influence on business models (BM) and business model innovation (BMI).

Literature review

The business model was defined by (Teece, 2010) as design and/or architecture of value creation, delivery and capture mechanisms that a firm employs. It has become an accepted tool for the analysis of business practices on the holistic level (Laudien and Daxböck, 2016). However, there exists a multitude of different approaches and frameworks that mainly differ in the components used and the level of aggregation (Osterwalder et al., 2005; Casadesus-Masanell and Ricart, 2010; Zott and Amit, 2010). Overall, the impact of Industry 4.0 on business models is a relatively new research area that has emerged to account for the predicted technological changes and also to integrate their implications into business research. Kiel et al. (2016) conduct a systematic literature review to identify the way in which academic literature addresses the impact of the IIoT on the business models of established manufacturers from 2011 to 2015. They conclude that there exists no comprehensive picture about the impact of the IIoT on the established BM, but that customized and individualized value propositions as well as smart products and services accompanied by a consequent service-orientation and thereby customer integration are identified in literature as critical changes. In a subsequent study, Arnold et al. (2016) used exploratory, semi-structured interviews to identify the change importance of the BM components by 69 experts across five different industry sectors. These experts identified changes in value proposition based on the optimization at the customers’ site via data mining and analytics, a change to the needed core competencies, the intensified customer relationship and the modification of manufacturing activities based on strategic partner networks in interconnected value chains as the most important changes across industries, with varying focuses within these industries. Laudien and Daxböck (2016) used an inductive, multiple-case study to gather insights on this new topic, thereby identifying the three archetypes of IIoT-based BM for German manufacturing firms: a technology adoption model that uses technology to optimize and rethink processes, a virtual diversification model that establishes a value network, allowing for more complex and complementary offerings while concentrating on the focal firms’ core competencies, and a full IIoT BM that utilizes and integrates the usage data from the

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 customers into value creation. According to these authors, IIoT-based BM are driven by themes such as enhanced efficiency of the production process, decentralized real-time information flow and process optimization within the partner network, new value propositions due to digitally enhanced products and direct interaction with customers as well as data access and needed information processing capacities, bundling of resources and capabilities with partners, and access to new data in conjunction with the development of new IT capabilities (big data analytics). Burmeister et al. (2016) have conducted an explorative, comparative interview study with large companies and industry associations to analyze the Industry 4.0 business model characteristics and implementations, focusing on the innovations within their business models and gaining qualitative insights into how firms approach the innovation process as such. The perception of the 14 interviewed firms ranges from seeing Industry 4.0 as a tool for data-driven efficiency improvements to entirely new roles and product/service combinations, while being hesitant to proactively capture opportunities, especially if these are more distant from their core businesses. The resulting ability to control digital structures, information availability and access may have an impact on firm boundaries, highlighting the increasing importance of networks and platforms. Based on entrepreneurship and transaction cost theories, Ehret & Wirtz (2016) explore the conditions for designing non-ownership BM that work as an insurance or hedging instrument against uncertainty downsides of manufacturing performance due to Industry 4.0 technologies. Mellor et al. (2016) highlight that no enterprise possesses the full range of skills that are required to address the challenges associated with the IIoT, and this fact increases tremendously the importance of partnerships and networks. Vandermerwe S. & Rada J. (1988) described a research project that enabled firms to innovate their business models with regards to Industry 4.0 by offering a structured and guided process, using a database of identified business model patterns and IT tools to facilitate the stepwise creation of a new BM while also accounting for potential general and Industry 4.0 specific risks. Even though Weinberger et al. (2016) focus on the IoT, their results capture the same customer specific changes that occur due to the IIoT. Using business model patterns they identify the ones that could profit the most from IoT and coin the term High Resolution Management to account for the greater insight into industrial processes based on the existence and application of high-resolution data. Weill P., and Woerner S. L. (2015) present their ten theses regarding business models within Industry 4.0, including blurring boundaries between physical products and enhancing services that result in data generation, efficiency gains and cost reduction due to automation and interconnection, new pricing and revenue models, platforms as a dominant design for digital BM, and flexible production and service networks.

Main focus of the study

Within the identified above literature, three frameworks were used most frequently: Osterwalder and Pigneur’s (2010) Business Model Canvas, the Business Model Patterns as well as a third, less defined category that can be loosely traced back to Teece’s (2010) three components value creation, value delivery and value capture. In general, business model frameworks overlap in large parts: all mentioned approaches agree on the components of value generation, delivery as well as a mechanism to generate revenue and differentiate

STATE-OF-THE-ART AND FURTHER DEVELOPMENTS IN regarding the aggregation level and the boundaries of specific components. However, while the Business Model Canvas aims to be an analysis tool applicable and usable in the business context, Teece’s three components are more suited for a descriptive approach, and the Business Model Pattern approach aims to support enterprises in their implementation of new BM by categorizing the existing BM and combining them into new ones. In the academic context of the Industry 4.0, the Business Model Canvas and the three component approach are used to generate analytical insights into the changes to specific components based on the predicted changes (Arnold et al., 2016; Burmeister et al., 2016; Kiel et al., 2016) or to identify archetypes (Laudien and Daxböck, 2016), while the business model patterns are mainly used to support enterprises in adopting and providing guidelines or structures to design new BM with some exceptions (Weinberger et al., 2016). In practice, frequently used tools are the Business Model Canvas as a tool for structuring BM ideas and Gassmann’s BM Patterns for creativity support (Burmeister et al., 2016). Overall, using mainly three out of several existing BM seems to be based on the prevalence of the respective models and increases their comparability. As it is typical for nearly all new concepts, the initial studies focus mainly on studying the early adopters using exploratory case studies or aim to derive descriptive and conceptual frameworks to build a solid foundation for future research. These methods shape the current research landscape as they are best suited to generate new insights while large empirical studies are difficult due to still low adoption rate (Laudien and Daxböck, 2016). This is also a major limitation in the current research, actually: Without the existence of sufficient data points regarding the implementation, due to restrictions predetermined by data security and safety as well as missing standards and technical capabilities, investigations are limited to generalize findings from qualitative studies or to rely on projected developments. Therefore, the literature tries to generate insights based on small, qualitative studies, identifying best practices and issues, or tries to develop implementation strategies or frameworks, thereby supporting future implementations for the firms. However, as results are uncertain, many firms hesitate to take such rather large financial risks while innovating their BM in accordance to the Industry 4.0 needs – which in turn increases the opportunities for those firms which try and succeed. While some authors predict a better handling of uncertainty downsides (Ehret and Wirtz, 2016), Arnold et al. (2016) find no empirical or even perceptive evidence within the current management practices to verify these assumptions. However, this might be explained by the early phase of the adoption process within the Industry 4.0 in general. Across the reviewed literature, some core concepts seem to reoccur that are agreed upon by practitioners as well as researchers: The most prominent concept for BM within Industry 4.0 appears to be data-centricity. Based on the enhanced products that include sensors, actuators, and interconnection, additional data can be collected within a firm as well as across firm boundaries, even extending to end users to enhance consumer value and experience (Mellor et al., 2016). This needs to be accompanied by sufficient analysis competencies. Using this data, the lowest hanging fruit is the improvement of the existing processes by increasing efficiency and reducing costs. The presented studies show that this is widely accepted by the firms and most often implemented, creating a lock-in with suppliers (Laudien and Daxböck, 2016; Burmeister et al., 2016).

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017

The generated data allows for customization to customer-specific needs or even integration of a customer into the value generation, thereby enabling an intensification of customer relationships (Arnold et al., 2016; Kagermann et al., 2013), e.g., via enhanced products serving at points of sales (Weinberger et al., 2016). This enables a joint development of new products and services with customers (Kiel et al., 2016). It also allows for customization of products, based directly on customers’ needs that no longer contradict cost leadership. Accordingly, the Industry 4.0 is perceived to offer new value propositions and advancements in the value-creating structures, even allowing for B2B2C connections (Burmeister et al., 2016; Kagermann et al., 2013). These changes of perception and technical possibilities also serve as the foundation for another reoccurring core concept: servitization. Even though this concept has already been widely discussed back in the 1990s (Vandermerwe and Rada, 1988), the enhanced products and gathered data allow for additional services, ranging from predictive maintenance over the offering of assets, processes, capabilities and output as a service to synchronized product/service combinations and value added services (Ehret and Wirtz, 2016; Kiel et al., 2016; Burmeister et al., 2016). This enables new revenue opportunities and allows firms differentiate their offerings so that to win successfully in intense competition. However, the capacity to analyze the generated data in real time or other challenges associated with IIoT often cannot be handled by individual companies, giving rise to the importance of value/partner networks (Mellor et al., 2016; Kagermann et al., 2013; Arnold et al., 2016) as well as a change in workforce qualifications and culture. Those networks are necessary to acquire the required skills to develop sophisticated solutions for Industry 4.0 and thus are predicted to become decentralized and possibly even created ad-hoc, allowing for real-time and flexible data exchange as needed (Laudien and Daxböck, 2016). Currently, smaller companies are adapting faster to this ecosystem concept than larger ones, probably due to smaller scale and the lower numbers (Weil and Woerner, 2015). Another, frequently stated concept is the creation of open platforms, where technology leaders or OEMs evolve into platform owners (Burmeister et al., 2016), enabling the offering of specialty solutions. This is closely linked with value networks, highlighting an ecosystem thinking that gains importance due to interconnectedness. Here, platform leadership or at least membership can become vital for a competitive advantage, especially when network effects are considered (Barbian et al., 2016). Even though platform-centricity is predicted to gain importance, companies do not seem to adopt actively or even neglect these opportunities and remain close to their core business (Burmeister et al., 2016; Kiel et al., 2016; Arnold et al., 2016). Other major outcomes of the current papers are the different business model concepts that categorize and structure possible changes to the BM based on qualitative insights. These are the basis for future quantitative studies as well as for practical implementations by the industry. Additionally, the results correspond in the importance of business model innovations to exploit the possible opportunities. By outlining the importance of value networks, small and medium-sized enterprises should seize the opportunity and distribute possible risks across their partner networks.

STATE-OF-THE-ART AND FURTHER DEVELOPMENTS IN

Conclusions

Currently, academic and management literature is trying to gain insights on the impact of Industry 4.0 for business models by developing suitable analysis frameworks related to business implications of the phenomenon. This paper has aimed to provide an overview for practitioners and scholars regarding the most important concepts for the implementation, the currently used analysis tools and the state-of-the-art in the research as of today. The presentation of the framework might generate a common ground to keep the usage of frameworks more compact and thus more comparable. The identified core concepts along with the current research directions indicate that business implications of the transformative effects of the Industry 4.0 have common and important characteristics the literature agrees upon. These concepts comprise the effects on three levels: direct technological implications such as data centricity and efficiency gains, the subsequent implications in the form of servitization, individualization and customer integration as well as indirect implications that require the interconnectedness of value networks to implement changes and open platforms to gain further advantages against the competition. The main limitations in this research area overall are related mostly to the small amount of actual Industry 4.0 implementations. This serious limitation is likely to diminish in size as both practitioners and scholars are aiming today to develop pilot projects to help facilitate the actual implementations in the industry, thereby gaining additional insights and data for further studies. Leveraging the increasing experience within Industry 4.0, the analytical and perceived concepts should be studied quantitatively to gain more reliable insights. Additionally, the identified concepts are not limited to Industry 4.0 and have already been examined in different contexts. Therefore, it is important to further include other research areas, such as IoT, servitization, open platforms and value networks so that to synthesize the existing knowledge within the Industry 4.0.

Acknowledgement

The authors would like to thank the Chair for Planning and Innovation Management, Brandenburg University of Technology for their financial support.

References

Kagermann, H. (2015). Change Through Digitization – Value Creation in the Age of Industry 4.0. In: Albach, M. and Pinkwart, R. (eds.). Management of Permant Change, Springer Fachmedien, Wiesbaden. Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers, and challengers, John Wiley & Sons.

Arnold, C. et al. (2016). How Industry 4.0 changes business models in different manufacturing industries. ISPIM Innovation Symposium. The International Society for Professional Innovation Management (ISPIM). Burmeister, C. et al. (2016). Business Model Innovation for Industrie 4.0: Why the "Industrial Internet" Mandates a New Perspective on Innovation. Die Unternehmung. 72(2), 124-152.

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Casadesus-Masanell, R. & Ricart, J.E. (2010). From Strategy to Business Models and onto Tactics. Long Range Planning 43(2), 195-215. Ehret, M. & Wirtz, J. (2016). Unlocking value from machines: business models and the industrial internet of things. Journal of Marketing Management, 33(1-2), 111-130. Kiel, D. et al. (2016). The impact of the industrial internet of things on established business models. Proceedings of the 25th International Association for Management of Technology (IAMOT) Conference. Laudien, S. M. & Daxböck, B. (2016). The influence of the industrial internet of things on business model design: a qualitative-empirical analysis. International Journal of Innovation Management. 20(8) Teece, D. J. (2010). Business models, business strategy and innovation. Long range planning, 43(2), 172-194. Vandermerwe, S., & Rada, J. (1988). Servitization of business: adding value by adding services. European management journal, 6(4), 314-324. Weill, P., & Woerner, S. L. (2015). Thriving in an increasingly digital ecosystem. MIT Sloan Management Review, 56(4), 27-34. Weinberger, M. et al., (2016). IoT business models in an industrial context. IoT business models in an industrial context. Automatisierungstechnik, 64(9), 699-706. Zott, C., and Amit, R. (2010). Business model design: an activity system perspective. Long range planning, 43(2), 216-226. Mellor, S. et al. (2016). The Industrial Internet of Things, Volume B01: Business Strategy and Innovation Framework. Online: https://www.iiconsortium.org/BSIF.htm Schlaepfer, R. et al., (2014). Industry 4.0 challenges and solutions for the digital transformation and use of exponential technologies. Online: https://www2.deloitte.com/content/dam/Deloitte/ch/Documents/manufacturing/ch-en- manufacturing-industry-4-0-24102014.pdf

Paper submitted 10 May 2017 Paper accepted 21 August 2017 Paper pubslihed online 09 October 2017

FISCAL REFORMS AND NATIONAL COMPETITIVENESS (THE CASE STUDY OF SLOVAKIA)

Mária Janošková

Adriana Csikósová

Katarína Čulková

Technical university of Košice, Slovakia

The paper attention is given to fiscal reforms in Slovakia. Reform measurements and their impact on the state budget have been investigated in selected areas of the economy. Reforms are always lively discussed issue. On the one hand they are reasoned by expert arguments, but also by political ideas and emotions. On the other hand we must see that the reforms affect all citizens, mainly children, students, workers, unemployed and pensioners. The paper contains a brief overview of the most important reforms in the years 2002-2006 as well as preliminary impacts on the economy, inhabitants and public finances. The aim of this paper is to describe the fiscal reforms in Slovakia, to bring close principles that were behind the changes and to evaluate their influence on the country's competitiveness. The aim is to show how economic policy and reforms have changed the socio- economic model in Slovakia and what results it has brought.

Keywords: fiscal reforms, tax reform, reform of pension system, reform of health care, reform of social benefits system, reform of education, reform of public administration, reform business environment, reform management of public finances, Slovakia.

Mária Janošková is PhD. candidate of economical sciences (since 2005), assoc. prof. at Technical university of Košice (since 2010). She works at Institute of Business and Management of Technical university of Košice, Slovakia. Her pedagogical and science activity are concentrated to Management of company, Strategic management, Business, Human resources management and Knowledge management. She published 6 scientific monographs, more than 30 articles in international journals, participated in more than 20 International scientific conferences

Adriana Csikósová Prof. Ing., PhD. deals with the issues of economics, international business, marketing and market research. She developed concept and introduced the subject of marketing, international business, and she guarantee them and lecture at Technical university of Košice. She was investigator of several projects in area of environmental and social aspect of social marketing, strategic management of the region, taking into account aspects of sustainable development in the region. The good orientation in this issue tells its publications and scientific research activity at home and abroad.

Katarína Čulková Assoc. prof., PhD. works on Department of Earth Sources, Faculty BERG, Technical University Košice, Slovakia. Her pedagogical, scientific and publication activity is orientated to the area of Financial analysis, Financial management and Financial investment in production companies and individual sectors of national economy. In her scientific and research activity she participated at solving problems of sustainable development in the region and presently she is part of project, orientated to the evaluation of economic efficiency of raw material policy of the state.

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017

Introduction

Slovakia is small, opened economy. Due to the number 5,4 million inhabitants it presents smallest country in V4-Visegrad (Poland, Czech Republic, Hungary, Slovakia), from the view of economic level Slovakia is approximately at level of Czech Republic, behind Hungary and Poland. GDP rate is created by private sector – 91,3%, high openness is characterized also by 157,1% rate of foreign trade turnover on GDP. Several years ago Slovakia belonged among countries, which were merely catching up with other countries in the accession process to EU. “Double deficit” had been discussed, mainly backsliding during acquisition of foreign investments and EURO accepting were only theoretical possibility. Presently the situation is different because Slovakia has important position in investment map in middle Europe, tax and pension system are example for other countries and economic growth exceeds 5% without important internal and external deficits. It presents good base for sensible growth of living standard in coming years. Also international institutions appreciate it and rating agencies increase rating of Slovakia and World Bank signified Slovakia in 2004 as “top reformer” in area of business environment. Base of the success was political will and courage, qualitative team of experts and effective coordination of all reforms. Influences needed to be evaluated complexly with aim changes in the individual systems would lead to the meaningful common result. Key factor was also patience of inhabitants, which could be obtained except of good communication also through concentration of minus to short time horizon. Economic reforms and national competitiveness growth, sustained development under the strict tactical control and strategic leadership of the national government, are important factors of modern countries’ social and economic dynamics, their repositioning in structure of international division of labor and global markets. Successful economic reforms have modernized societies, turned countries devoid of natural advantages in the new centers of capital concentration, highly skilled workforce attraction and technologies generating.

Background

Growth of international competition, imbalance of the world markets of natural resources and raw materials, escalation of political instability, formation of new challenges for modern states and world community as a whole, are making issues on realization of successful, effective economic reforms and adequate requirements of business efficiency, global competitiveness and national social justice, security priorities and economic globalization inevitability sharply actual. For decades, scholars and policy-makers have been interested in how fiscal policy influences entrepreneurship. Until now, research has focused on fiscal policy at the federal or regional level and used macro-economic outcome measures. Considerably less attention was given to how municipal governments can influence economic outcomes at the micro level. De Schoenmaker et al. (2014) examine the effect of municipal taxes, spending and tax compliance costs on firm profitability. The findings reveal that local taxes have a negative impact on firm profitability. Europe was one of the poorest-performing regions in terms of growth, which limits its ability both to exert influence overseas and to satisfy its citizens, particularly because unemployment and inequality have increased in the course of integration process

FISCAL REFORMS AND NATIONAL COMPETITIVENESS

(Dauderstädt, 2007). EU needs a coordinated economic policy in which monetary policy is not exclusively directed towards stability, and with more public investment in innovative industries and continuing expansion of consumption. Zeyneloglu and Koening (2017) provide discussion of the most recent developments in open economy macroeconomics literature on fiscal policy which grown rapidly in recent years. This growth is stimulated by three recent economic trends which are likely to influence the efficiency and management of fiscal policy. First, the increasing integration in international financial and goods markets led researchers to reconsider its impact on the effects of fiscal policy by relaxing the purchasing power and the interest rate parity assumptions which are retained in the early open-economy general equilibrium models. Second, the public debt crisis seen in most of the developed countries led to the analysis of fiscal policy based on better management of government expenditures and to the specification of a debt-financed fiscal policy that internalizes the necessity of a sustainable deficit. Third, the creation of European monetary union and recent global economic crisis raised interest on the gains from fiscal stabilization. Empirical research has uncovered an equity-efficiency trade-off in alternative fiscal consolidation strategies. Tirelli and Ferrara (2017) investigated the issue of designing debt consolidation plan which is achieved through reduction in public consumption and yet is equitable because temporary targeted transfers and tax reductions stabilize consumption of the poorer part of the population. This causes limited slow-down in the pace of debt reduction because fiscal multipliers associated to the tax/transfer policies are large. To the extent that fiscal policy can mitigate business cycle fluctuations international interdependencies in stabilization policies arise. Andersen and Spange (2006) showed that there is welfare case for an active stabilization policy, and that it is larger in presence of adjustment failures. Fiscal coordination offsets the disciplining effects of monetary unification. Hence, subsidiarity in fiscal policymaking may enhance welfare (Beetsma & Lans Bovenberg, 1998). As for the development of subject area in chosen countries, Velinov (2015) indicates that Finland, Norway, Sweden, Switzerland, and the UK have sustainable fiscal policies. Greece and Japan have unsustainable fiscal policies, which could lead to debt default unless appropriate measures are taken. De-Córdoba et al. (2017) develop general equilibrium model with detailed structure of government expenditures and revenues, calibrate it to Greek and German economies, and use it to study the link between fiscal discipline and defaults. Ireland holds the story of successful evolution from the moment of its accession to EU up to the present day, achieving an impressive economic transformation that repositioned the country in hierarchy of developed EU member states (Coman, et al., 2010). Long-term trends suggest that Italy's current economic crisis is not the result of an unfavourable business cycle or of the recent global economic and financial crisis. Instead, Italy's crisis accompanied by persistent slow economic growth is the result of decade-long structural shortcomings and inefficiencies. Many factors explain why and how Italy experienced sluggish economic growth and increasingly uncompetitive productivity over decades (Lenti, 2014). Hasani (2016) makes measures in Kosovo undertaken from the government from 2008 to the first half of 2015 have consistently taken several measures of fiscal and other economic measures which are the aim of stimulating economic growth. Government spending shocks, in general, have small effect on Gross Domestic Product (GDP); lead to important 'crowding-out' effects; have varied impact on housing prices and generate quick fall in stock prices (Afonso & Sousa, 2012). Agnello and Sousa (2014)

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 considered the linkages between banking crises and fiscal consolidation, finding that the effect on income gap is amplified when fiscal adjustments take place after the resolution of such financial turmoil. Alesina et al. (2002) evaluate the effects of fiscal policy on investment finding sizeable negative effect of public spending - and in particular of its wage component - on profits and on business investment. Waters (2013) shows foreign investment and by this way also development of the country can be done through export processing zones, statutorily created investment parks.

Fiscal reforms in Slovakia

Success of economic policy of Slovakia in abroad and general recognition of structural reforms brings also tangible effect by foreign investments inflow and creation of new working posts, or by rating evaluation increasing. In the paper we will describe eight reforms that played key task in mentioned facts. Most discussed is tax reform. Effect of flat tax and simplification of Value Added Tax (VAT) rates is big and brings considerable positives besides ahead advised contributions. From the view of generational justice and strengthening of personal responsibility reform of pension system brings considerable change. Increased age of retirement and strong capitalized pillar transition of disproportionately financial burden to future generations. Reform of health care in Slovakia had as goal to limit system misusing, increasing of services quality by interesting of private sources and increasing of processes effectiveness through market mechanisms. Reform of social benefits system - establishment of activation bonuses supports maintenance of working skills and interesting of individuals during own situation solving. It is very important in country, where unemployment is still high, in spite of decreasing tendency. Reform of education - most important approved change is financing of regional education according number of pupils, which press on increasing of system effectiveness: removing over employment, motivating merger of small schools. Important results are economic stabilization of public higher education. During reform of public administration there was also fiscal decentralization. Territorial administrations received free hand during determination of local taxes level. Basic assumption is that some specific problems are effectively solved at the regional or local level. Not negligible improving was also in business environment. Evaluation “top reformer” (among 145 countries) from World Bank in 2004 speaks for itself. Except of decreasing of tax wedge, simplification of inputs to business is considered as considerable change of increasing of job market flexibility. The less visible reform in public is reform connected with management of public finances. Together setting of tough budget limitations, multiannual budgeting with program structure, establishment of Agency for debt and liquidity management, acting of State Treasury save considerable amount of money for taxpayers (Mikloš, 2005). Although we do not know full impact of all reforms, from partial results it clearly results that in addition to stabilization of macroeconomic developments reforms contributed to high, sustainable economic growth, they have laid good foundation for growth in living standards in the coming years without threat to social security for future generations.

FISCAL REFORMS AND NATIONAL COMPETITIVENESS

Tax reform

Government of Slovakia in Program Declaration in 2002 obliged to transplant increasing of effectiveness of taxes and payment collection. Simplification of tax legislation and novelization of tax laws should contribute to increasing of tax collection. Possibilities for simplification of income tax rates had been also considered before entering Slovakia to EU. Part of the changes was also using of information technologies and gradual transiting to the submission of tax returns, reports and declaration of assets through internet. Goal of tax reform was: To create positive business and investment environment, To simplify removing of weak sides and deforming effects of tax laws, To achieve high level of tax justice by flat taxation of all sorts and volume of incomes. The aim of Slovakian government in tax area was to create tax system as one of the competition systems in EU and OECD, conceived as high effective and transparent system without deformation. Conception of tax system had been based on principles of justice, neutrality, simplicity, usefulness and exclusion of double taxation. Principle of justice – must be provided by horizontal and vertical justice. Horizontal justice means the same taxation of the same subjects of taxation and vertical justice provides that subject having higher incomes, higher property or consumption, would pay higher tax. Principle of neutrality – that taxation would minimally distort economic processes and minimally influencing economic decision of subjects. Principle of simplicity and exactness - rules of taxation mast content necessary minimum of clearly conceived norms that does not enable more interpretations. Efficiency – useful tax does not provide legal possibilities for tax payment avoiding, does not make easy illegal tax evasion and does not force subject by improper measurements to tax evasion indirectly. Exclusion of taxation duplicity – subjected to the demand that incomes would be taxed only once, during transition from creation to consumption, or reinvestment. (This demand is relevant mainly during income taxes (dividend) and property taxation). Assumption for realization of mentioned goals was respecting tax reform principles: Transition of tax burden from direct taxes to indirect tax, transition from taxation of production towards taxation of consumption. Recall of progressive marginal taxation of incomes by flat tax. Elimination of exceptions, special regimes and tax exemption. Removing of deforming elements of tax policy, by which not fiscal goals had been succeeded and removing of double taxation of incomes.

Measurements in direct taxes

Flat tax introduction means unified income taxation for physical and legal persons by single linear tax rate 19%, started to be applied in 1st January 2004. Existence of single marginal tax rate decreases deformation effects of income taxation of physical persons and limits then connected economic obstacles. New tax system established principle of one taxation of investments and capital incomes. Its establishment had been cancelled by tax from dividend and capital incomes is taxed only once in the company. Thus there was created system from lowest taxation of capital in OECD. Principle of transparency in new law of

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 income tax had been carried by radical simplification of income tax. Flat tax for businessmen was cancelled and replaced by institution of tax expenses. It was expected simplification and transparency of income tax law that would contribute to improving of business environment. Reform eliminated two most commonly criticized shortages, mainly complication of tax low and it’s often novelizations. Tax reform created considerable stimulus for inflow of other investments. Except of mentioned government expected that low tax rate and law transparency would decrease volume of tax evasion and avoidance of tax payment. Tax reform is closely connected with reform of social security, pension reform and reform of health care system. Almost all exceptions and deductions during taxation of physical persons incomes, originally connected with non-fiscal political goals, were replaced by target measurements in correspondent area of policy. Tax reform removed also taxes from donation, inheritance, taxes from real estate transfer.

Measurements in area of indirect taxes

Immediate consequence of introduction of relatively low flat tax is decreasing of incomes from direct tax. Therefore this influence partially compensated transfer of tax burden from direct taxes to indirect taxes (VAT and consumption taxes). From 1st January 2004 basic and decreased VAT rate was cancelled (20% and 14%) and unified rate of VAT 19% had been introduced for all goods and services. This solution eliminates also economic deformation, connected with different taxation of consumption of various types of goods. Decrease VAT rate was reasoned by social aspect, resp. non-fiscal arguments. It should improve availability of basic foods and other chosen types of goods for socially weak groups and to influence consumption of certain goods. Number of studies proved that decrease VAT rate helps at least the rich, not poor, therefore government decided to replace such not effective tools of fiscal policy by more effective tools in area of social policy and health care.

Measurements in area of tax administration

Tax reform had its concrete way also in rationalized process that had been running at the level of tax organs. Basic goal was intensification of work and increasing of performance of tax organs through more effective management.

Results of tax reforms during the operation

Government of Slovakia assumed tax reform would contribute to improving of business environment, to higher motivation to work, make business and invest, to higher inflow of foreign investments and to decreasing of tax evasion. Today, several years of new tax system introduction, such assumptions had been filled, in some areas development is yet more considerable than original assumptions. Tax reform started to be significant marketing asset of Slovakia, playing important role during country attractiveness for investors. It is connected not only with simplicity and lower level of taxation, but also with the fact that total capital taxation is lowest in EU due to the influence of cancellation of tax from dividend in Slovakia (Figure 1).

FISCAL REFORMS AND NATIONAL COMPETITIVENESS

Slovakia Estonia Finland Hungary Czech Republic Poland Germany Japan Great Britain France Ireland USA 0 10 20 30 40 50 60

Rate of incomes tax for legal persons Effective ratte of taxation for capital revenues

Figure 1 - Income tax for legal person and tax of dividend in EU (made by co-authors)

Also fiscal results of tax reform are positive. Reality in first year of reform operation proved such access was proper and total estimation of ministry was rather exact, in spite in other structure.

Development of tax incomes in Slovakia before flat tax introduction

Introduction of flat tax system is conditioned by further transition of taxation to indirect taxes to VAT and consumption taxes. Changes of tax system influenced changes of tax incomes structure (Table 1.). Yet in first year of reform there was collected more taxes from legal person’s incomes than in last year before reform, in spite of tax rate decrease from 25% to 19%.

Table 1. Tax income in Slovakia before introduction of flat tax (Source: www.finance gov.sk)

mil. EUR 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income tax from physical person 695 855 1037 1138 1207 1054 1193 1204 1303 1208 Income tax from legal person 1165 926 871 847 870 813 878 926 1118 1171 VAT 1616 1636 1721 1953 1919 2167 2454 2581 3031 3506 Consumption taxes 678 709 717 768 857 970 922 1085 1267 1499 Real estate, local and other taxes 634 733 869 921 1040 1080 781 867 910 754 Income tax of public administration 4788 4859 5215 5627 5893 6084 6228 6663 7629 8138 together

Development of tax incomes in Slovakia after flat tax introduction

After introduction of flat tax in 2004 (Table 2.) impact of tax reform proved immediately in 2005, when there was growth of tax incomes in all types of taxes. Tax incomes increased in 2005 against 2004 almost by 851 mil. Euro and similar development

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 was in following periods. Introduction of flat tax increased other incomes to state budget, but it caused increasing of tax burden for all tax subjects.

Table 2 - Income tax in Slovakia after flat tax introduction (Source: www.finance gov.sk)

mil. EUR 2005 2006 2007 2008 2009 2010 2011 2012 2013 Income tax from physical person 1301 1377 1597 1821 1519 1513 1730 1864 1846 Income tax from legal person 1344 1599 1848 2087 1582 1659 1659 1670 1997 VAT 3879 4103 4147 4621 4221 4182 4710 4327 4722 Consumption taxes 1804 1589 2171 1809 1761 1930 1998 1973 1976 Real estate, local and other taxes 661 718 779 834 794 814 872 1111 1242 Income tax of public administration 8989 9386 10542 11172 9877 10098 10969 10925 11783 together

Table 3 - Rate of income tax on GDP before reform introduction (Source: www.finance gov.sk)

% GDP 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Income tax from physical person 3,6 4,0 4,3 4,3 4,3 3,4 3,5 3,3 3,2 2,7 Income tax from legal person 6,0 4,3 3,6 3,2 3,1 2,6 2,6 2,5 2,8 2,6 VAT 8,4 7,6 7,2 7,5 6,8 7,0 7,2 7,0 7,5 7,8 Consumption taxes 3,5 3,3 3,0 2,9 3,0 3,1 2,7 2,9 3,1 3,3 Income tax of public administration together 24,8 22,6 21,9 21,5 21,0 19,5 18,4 18,1 18,8 18,0

Table 4 - Rate of income tax on GDP after reform introduction (Source: www.finance gov.sk)

% GDP 2005 -06 -07 -08 -09 -10 -11 -12 -13 Income tax from physical person 2,6 2,5 2,6 2,7 2,4 2,3 2,5 2,6 2,6 Income tax from legal person 2,7 2,9 3,0 3,1 2,5 2,5 2,4 2,3 2,5 VAT 7,9 7,5 6,7 6,9 3,7 6,3 6,8 6,1 6,5 Consumption taxes 3,7 2,9 3,5 2,7 2,8 2,9 2,9 2,8 2,8 Income tax of public administration together 18,2 17,1 17,2 16,7 15,7 15,3 15,9 15,3 16,0

Rate of tax incomes on GDP

During comparing of income rates on GDP before and after reform introduction (Table 3. and 4.) tax reform, built on flat tax, brought positive results. Rate of tax incomes on GDP was not dramatically changed and basically fiscal neutrality was achieved. Single considerable change is decrease of rate during tax from physical persons incomes, growth (after initial decrease) of revenue from tax of profit and initial growth (and consequently decrease) of rate for revenue of VAT.

Fiscal influences of tax reforms

Government of Slovakia dealt greatly to remove considerable negative influence of tax reform and its fiscal position. To have certainty that in first year after reform the result in public finances would not be negative, government made five independent estimation of fiscal influence of the reform. Sophisticated quantification of expected effect was influenced by availability of proper structure of data of incomes development at the level of households and complication during estimation of tax elasticity. Development of tax incomes in 2004 shows such access was proper. Filling of total tax incomes of public finances corresponds

FISCAL REFORMS AND NATIONAL COMPETITIVENESS with expectations. According preliminary data direct taxes was filled better than budget, but indirect taxes recorded worse situation.

Reform for improving of business environment

Government of Slovakia obligated to support business and to improve business environment. Interest was to simplify entering to business and administrative process. Except of mentioned it also supports inflow of investments and in this way competitiveness of Slovakian economy. Goal of the reform for improving of business environment was: To improve and increase effectiveness of legislation, connected with business environment. To limit bureaucracy. To increase effectiveness of justice system. To improve availability of financial sources. Growing satisfaction of domestic businessmen, expressed by Index of business environment and presently also by inflow of foreign investments to Slovakia speak of improving of business environment. Yet in 2004 World Bank marked Slovakia as “top reformer” and ranked Slovakia at 18th place between countries with most attractive business environment in the world. All made reforms had direct or indirect influence to the improving of business environment. Just most important was influence of tax reform, which main characteristic was introduction of flat tax and transfer of tax burden from direct taxes to indirect ones. With positive responses from the side of businessmen went also decreasing of wedge for employers by 3 percentage points to 35.2% from gross wage. Reaction to not flexible job market was novel of Labor Code, with goal to increase effectiveness of working relations, which should contribute to the improving of business environment and employment growing. Working relation for certain period and shorter working time was newly defined, process for recruiting and layoffs employees speeded up and increased its efficiency. Also collective negotiation recorded changes, single companies made detail adaptation. The biggest problem of business environment in Slovakia is still not effective operation of legal system and bad law enforcement. Improving of such situation demanded to realize basic reform steps in area of judicature, optimizing of justice system and project Legal Management. Established institute of extra court settlement and law about higher legal officers should to remove burden from courts and judges from administrative activity. But such reform is complicated and till now it did not bring expected positive results. Accepted legislative measurements made easy beginning and termination of business. Novel of Trade Act removed some administratively sophisticated formalities. Period for decision of tax administrator about registration of traders as tax payers shortened and period for issue of trade license shortened also to 7 days. Changes occurred also during registration of new companies, when new law about business register adapted conditions with aim to be registered in Business Register of Slovakia to 5 working days. In 2003 there was created portal of public administration that enables inhabitant’s interactive communication. In 2004 Strategy for information of the society in Slovakian conditions had been approved, which goal is to build and develop information society conceptually and by this way to create conditions for improving of quality for inhabitant’s

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 life, increasing of effectiveness of state administration and improving of quality for support and development of business. Strategy defines on-line services for legal persons and it is orientated also to the development of electronic business and entrepreneurship. The goal of mentioned measurements is to achieve fully electronic change of information about businessman among individual public institutions.

Table 5 - Average interest rate from credits for business subjects (in %) (Source: National Bank of Slovakia) Decreasing of interest 1998 1999 2000 2001 2002 2003 2004 Average interest rate from credits to 20.63 17.17 11.96 9.25 8.99 7.39 7.64 business subjects (%)

In last years also availability of financial means for business subjects improved considerably. It was influenced mainly by structuralizing and privatization of bank sector. Remediated banks started to find firm´s clients more actively and to extend portfolio of offered credit products. Together they toughen conditions during evaluation of clients’ bonity. From 2004 in Slovakia there is acting Credit register, in which there are information about clients that obtained credits. Decrease of interest rate contributed to the extension of credit financing by greatest measure (Table 5).

Conclusion

One of the key problems in reform process in every country is its political throughput. Problem is mainly that reforms mean change and people are afraid of changes and they refuse the change. It is similar in the world, in spite in some countries it is applied less or more. Change by itself means uncertainty, caused by new conditions, without regard to its real impacts. Reforms are most common connected with high costs (from short term view), as well as revenues. It leads not only to worry from reforms, and to their refusing, but also to the fact that consequences of reforms (mainly social) are perceived by public more negatively in comparing with reality. It is confirmed also in experiences from Slovakia. Major opinion in Slovakia was that reforms were rather necessary and basically also made properly, but „there were not sensible from the view of social area, yet unbearable“. According some opinions they mean too high burden for inhabitants, with negative impact mostly to the lower income groups. But reality is and also was rather different – it is confirmed also by data of trend of real wage growth, which means also growth of standard of living for inhabitants to 2006.

Acknowledgements

Contribution is partial result of projects solving VEGA MŠVVaŠ SR 1/0310/16 and 1/0461/17.

References:

Alesina, A., Ardagna, S., Perotti, R., & Schiantarelli, F. (2002). Fiscal policy, profits, and investment. American Economic Review, 92(3), 571-589.

FISCAL REFORMS AND NATIONAL COMPETITIVENESS

Afonso, A., & Sousa, R. M. (2012). The macroeconomic effects of fiscal policy. Applied Economics, 44(34), 4439-4454. Agnello, L., Sousa, R. M. (2014). How does fiscal consolidation impact on income inequality? Review of Income and Wealth, 60(4), 702-726. Andersen, T. M., & Spange, M. (2006). International interdependencies in fiscal stabilization policies. European Economic Review, 50(5), 1169-1195. Beblavý, M. (2007). Social Reform and Labour Market Reform. Beetsma, R. M. W. J., & Lans Bovenberg, A. (1998). Monetary union without fiscal coordination may discipline policymakers. Journal of International Economics, 45(2), 239-258. Csikósová, A., Antošová, M., & Čulková, K. (2014). Strategic aspects of business in context of regional development. Ostrava: VŠB-TU. Coman, A. N., & Coman, P. P. (2010). Ireland: An example of best practices in teh utilization of EU funds. Amfiteatru Economics, 12(28), 661-674. Čulková, K., Janošková, M., & Seňová, A. (2017). Development of chosen macroeconomic indicators influencing the competitiveness of V4 countries. Actual Problems of Economics, 3(189), 42-49. de-Córdoba, G. F., Pujolas, P. S., & Torres, J. L. (2017). Fiscal discipline and defaults. Review of Economic Dynamics, 24(2017), 1-13. De Schoenmaker, S., Van Dauwenberge, P., Vander Baunwhede, H. (2014). Effects of local fiscal policy on firm profitability. Service Industries Journal, 34(16), 1289-1306. Lenti, R. T. (2014). Italy and Japan: How similar are they? A comparative analysis of politics, economics and international relations. The Italian Economy 1961-2010: From Economic „Miracle“ to Decline. In Perspectives in Business Culture, pp. 185-204. Mikloš, I. (2005). Book of reforms. How Slovakia obtained international recognition in economic area (in Slovak). Bratislava: Ministry of Finances in Slovak. First year of tax reform, (2005), Economic analysis, Ministry of Finances in Slovak. Retrieved November 16, 2016, from www.finance.gov.sk Statistical Office of SR, www.statistics.sk Tirelli, P., & Ferrara, M. (2017). Equitable fiscal consolidations. Economic Modelling, 61(1), 207- 223. Velinov, A. (2015). Assessing fiscal policy sustainability: On the different states of the debt to GDP process. Finanz Archiv, 71(4), 415-439. Waters, J. J. (2013). Achieving world trad organization compliance for export processing zones while maintaining economic competitiveness for developing countries. Duke Law Journal, 63(2), 481-524. Zeyneloglu, I., & Koening, G. (2017). Recent economic developments and the implications for fiscal policy in open economy macroeconomics. Revue d'Economie Politique, 126(6), 1023-1056.

Paper submitted 07 May 2017 Paper accepted for publishing 23 August 2017 Paper pubslihed on-line 30 November 2017

INDUSTRIES SUSTAINABILITY: RUSSIA GUIDELINES OF PROJECT MANAGEMENT

Apenko S. N.

Dostoevsky Omsk State University, Russia

Project management as the theory, methodology and set of practical technologies has significantly strengthened its position in the modern management of economic entities. Project management proves own efficiency, also in the development and implementation of economic reforms. This raises the urgent issue of integration and integrated use of project management and sustainable development concept. Today, scholars and practitioners declare an importance of sustainability criteria implementation at the project level. Therefore, the aim of the study was to develop provisions for sustainable project management. Consequently, results of the study proposed: clarification of sustainable project management essence, interrelation of directions of sustainable development and functional areas of project management, conditions and prerequisites for the transition to sustainable project management, rationale for the transition to sustainable project management towards so-called "weak" sustainability.

Keywords: stability, the sustainable development concept, "green" management, "green" economy, projects, project activity, project management, economic reforms.

Introduction

In recent years, Russian economy under the influence of different factors is experiencing serious difficulties. Beginning from the end of 2014, experts-economists record the signs of economic crisis. The intensification of economic problems contributed to various events, including decreasing of oil prices, economic sanctions and the weakening of the domestic market. The status of country-producer of energy resources which has previously stimulated an economic growth, at the present time is a big problem. The Russian economy largely depends on energy export, oil and gas extraction accounted for half of government revenues. The extraction of other raw materials, such as metals, also has a certain portion of state exports volume. Falling prices for energy and raw materials in 2015 resulted significant deficit of Russia's income. Based on the predictions that in the short term, commodity prices will remain low, the current situation is something more than just temporary difficulties.

Apenko Svetlana Doctor of Economic Sciences, Full Professor ( 2006); position - head of the Department in Dostoevsky Omsk state University, Omsk, Russia (since 2011). Since 2010 elected member of the European Academy of Natural Sciences, corresponding member of the Russian Academy of Natural Sciences. Beginning from 2016, become the expert of the Russian Academy of Sciences. Her research interests are related to project management, organizational development and consulting, human resource management of organization. She has published about 250 papers, including 10 monographs. She is a head of research grants of the Russian Foundation for Basic Research; certified professional in project management (has certificate of the International Association of Project Management (IPMA)).

INDUSTRIES SUSTAINABILITY: RUSSIA GUIDELINES

Sounds reasonable enough the idea, that the main problem of the Russian economy are not economic sanctions, not the fall in energy prices, but the model of economic development. Today recognizes the need for the implementation of the next structural reforms that will be the key to overcome the crisis. Russia's path to economic recovery and growth depends on the pace of reform, especially in the range of the next few years. At the moment, the reform processes have already started. The processes of economic reform affect, among others brunches of industry. Russia is a country with a developed industry that provides more than 2/5 of national income has about 1/2 of the fixed assets and together with the construction employs 2/5 of population (Industry of Russia, 2016). The main trend of the industrial sector in 2016 was a slow transition from a resource-based economy, dominated by extraction industry, to production, where significant investments were directed to manufacturing. Of course, the main factor in this change was the strategy of import substitution and emphasis on the recovery of domestic agriculture and food industry. The first recorded results are little yet positive. So there was a positive dynamics in the engineering, chemical, light industry and processing industries. However, it is too early to talk about industry’s substantial growth. Objectively in 2016, growth was observed only in the segments dominated by state order (defense industry, agriculture, and engineering). At the present stage basis of economic reforms in industry laid down policy of innovation. In recent years conceptual reorientation occurs in the strategies of most companies, the essence of which is to shift from the economic effect of large scale manufacturing to innovation-focused strategy. In the modern economy innovations are the main means to ensure the competitiveness, stability and efficiency of economic subjects activity. In all spheres of industry there is a relationship between competitive position, the results of the company and its innovative potential. Increasing efficiency of company development can be achieved by improving product quality, including through the implementation of the resource conservation policy, improve the quality of services provided by infrastructure, development and use of innovative technologies and equipment, and also production of new goods that will be competitive in the market. However, the determining factor is the innovation. With this comes innovations development and implementation require changes in the control system. At the moment it becomes a steady trend of transition to project-oriented management. This management means approach, according to which stand out regarding the independent activities in the form of project, program or portfolio and in relation to them are used the basic principles and methods of project management. In particular, are given the timeline, budget, goals, results quality metrics, volume of work are planned. Different tools based on managing project risks, resources, costs, changes, integration, communications, and other compulsory areas. A distinctive feature of project activity is its innovative character; the project activity must be unique. Therefore, any innovation is optimally implemented in project form, using the technology of project management. A modern trend is the understanding that project management should be implemented on a certain ideological basis, sustainable development concept. Today, all countries, including Russia, recognize that the world economy should have such kind of development that meets the needs of the present, but does not compromise the ability of future generations to meet their own needs. At the same time, researchers began to talk that the concept of

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 sustainable development should be implemented at different levels: national, regional, sectoral, and corporate. One important level is the project level. Therefore, there is the task of the formation of project management that is integrated with sustainable development concept. The aim of this study is a development of theoretical and methodological principles of sustainable project management.

Background The concept of sustainable development in the last decade has become fast-developing and popular. However, this is a highly practical concept: all the developed countries have expressed own desire to follow the direction of sustainable development. The issue of sustainable development became a leading theme of the UN International conference on environment in Rio de Janeiro (1992). 179 countries have developed program at this conference for the twenty-first century, where ecology, economy and social security should be united in a single whole. A large number of official national and international documents in recent years as the underlying ideology are using the concept of sustainable development. Attention to sustainable development is evidencing in Russia. For example, 2017 is declared in Russia as an year of environmental protection, namely environmental criterion is one of the main criteria of sustainability. Sustainable development in a broad sense is realized as such a development, which is aimed at obtaining the complex of economic, environmental and social effects and which is aimed at current and future needs of the population. It is extremely important for sustainable development to reveal itself at the level of project activity. Therefore, in recent years, new scientific and applied direction – sustainable project management - is emerging. The concept of "sustainable project management" was introduced by the Executive Director of the Business Council for sustainable development (BCSD) J. Hugh Faulkner in 1994 (Grevelman & Kluiwstra, 2010). Despite the fact that this concept is already quite a long time there, nevertheless at this point the theoretical basis for the application of sustainable development models at the project level are under-represented. In the domestic literature this direction was developed in the works of V. M. Anshin (2015) and E. S. Manaikina (2015). But in Russian economic science there are not many works for sustainable project management. This is largely due to the fact that project management, as well as the issue of sustainability had not received yet of sufficient distribution in Russia in comparison with Western countries. Among foreign literature the topic of sustainable development principles integration in project activities was reflected fragmentary too. The relationship of sustainable development with project management as a separate field of study came with the release works of Bernard L., Gareis R., Huemann M. (2011), Martinuzzi A., Silvius G. (2014), Labuschagne C. (2005), Taylor T. (2008). First the model of integrating the principles of sustainable development in project management was proposed in the study of C. Labuschagne and A. Brent (2005). However, many works of foreign authors consider only the effect of individual aspects of sustainable development on project management processes. For example, current works are concerned only with environmental project management (green project management). Or, for example, the study by C. Labuschagne and A. Brent (2005) was aimed at studying the social dimension of sustainable project management concept. A significant attempt at using the concept of "sustainable development" in the daily work of project managers has taken by T. Taylor(2008). G. Silvius (2014) proposed the concept of indicators of projects sustainability. But, despite significant steps in the field of

INDUSTRIES SUSTAINABILITY: RUSSIA GUIDELINES integration of sustainable development concept in project management those works do not reflect a systematic approach. Hence, today system studies aimed on the complex solution of questions on sustainable project management nature, specific criteria and indicators for sustainable project management, connection of sustainability with functional areas of project management are highly important.

Solutions and recommendations

The traditional model of economic growth in industrialized countries has largely exhausted itself and cannot be offered to other countries as a reference model. In particular, it is noted that the only possibility of solving the modern global problems is sustainable development. The current model of development and appropriate nature of production and consumption are not sustainable for the rich countries and may not be repeated in other countries. This is confirmed by the fact that natural resources consumption of and volumes of pollution per capita in developed countries more than in developing countries about 20-30 times. To make all countries tp achieve the level of development and consumption similar with advanced countries it would need to increase natural resources using in dozens times, which is impossible because of resources and natural environmental constraints limitations. Continuing to consider the reasons for the growing sustainable development popularity, it should be noted that in modern conditions deep contradictions between economic growth and environment become obvious. World and Russian experience shows that, on the one hand, it is impossible to ensure sustainable economic development of society through the destruction of the natural environment and depletion of natural resources, and on the other hand, without a strong economy it is impossible to maintain the necessary human survival parameters of environmental quality. In recent years the environmental factor has become feasible to limit people's welfare: human health deteriorating, reduced life expectancy, wasteful temper of nature management gives rise to increasingly acute environmental problems. Although the philosophy and the economic meaning of sustainable development concept have a common interpretation, however, there are various ways to reveal the essence of sustainable development. The most common definition is the one which was given by the Brundtland-Commission, which on behalf of the United Nations in 1987 formed the essence of sustainable development. Sustainable development is a kind of development that meets the needs of the present time but does not compromise the ability of future generations to meet their own needs. Sustainable development contains two key concepts: the concept of needs, in particular needs necessary for the existence of the poorest segments of the population, which should be the subject of a first priority; the concept of constraints imposed by status of technology and social organization imposes on the ability of the environment to meet current and future needs. Central in the concept of sustainable development is the task of considering long-term environmental consequences of today accepted economic decisions. Minimization of negative environmental impacts that can experience the next generation is necessary. Thus, the aim of the environmental constraints of the tradeoff between current and future consumption should become the basis for socio-economic development strategy for any country. This must be an important landmark in the development of economic reform and its

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 target indicators, as well as those projects that will be implemented in the framework of Russia reforms. In essence the current economic reform is impossible without detailing of the prior areas for sustainable development. For industries sustainability is very important, because these sectors are facing acute problems such as use of the resources, technologies and production processes that have to meet environmental standards. Thus, the current economic reforms being implemented through projects should reflect criteria of sustainability. This requires appropriate project management called sustainable project management. Let’s generalize new and give the author's interpretation of some provisions of sustainable project management concept. Sustainable project management is the management that uses the most important criteria for projects’ success evaluating the criteria of sustainability. That is, the projects have to get the management with the sustainability requirements. Sustainable project management is focused on the development, which combines the steady improvement of the economic and social living conditions with the long-term preservation of the natural bases of life. Some explanations on the essence of sustainable projects management can be given. Sustainable project management is management which: does not entail and does not impose additional costs on subsequent projects, affecting the lives of future generations; provides constant simple and/ or expanded reproduction of the productive capacity for the future; provides the maximum possible slowdown in the rate of non-renewable natural resources (e.g., mineral resources) depletion with the prospect to replace them by unlimited resources in the future. For example, replacement of oil, gas, coal by alternative energy sources - solar, wind, etc.; contributes to create conditions when mankind can only live on the interest from natural capital (renewable natural resources), without wasting this capital; has one of the key performance indicators “waste minimization” through the introduction of low-waste, resource-saving technologies; assumes that environmental pollution (both total and by types) in the future should not exceed its current level. These aspects are the criteria of long term sustainable development, which need to consider initiating projects, planning, organization, monitoring and evaluation. It will allow preserving of environment for future generations and will not worsen the ecological environment. Big focus on environmental and economic policy in the implementation of projects has led to the fact that often sustainable project management and "green" project management are treated as synonyms. Let's summarize some of the provisions on sustainable project management. First of all, note that there are private definitions of sustainable project management, closely linked to project management. For example, a sustainable (green) project management is an approach that is minimizing the negative environmental impact of projects, and unifying standards in the field of environment with existing procedures and processes in project management. That is, attempts to connect the sustainable development concept, the theory and practice of project management and professional standards in the field of projects management.

INDUSTRIES SUSTAINABILITY: RUSSIA GUIDELINES

Figure 1- The integration of sustainable development and project management (made by the author)

If to consider relationships between project management and “green” management on the level of standards, it should be noted that professional standards in project management has increasingly reflected the idea of sustainable development. For example, in the standard PMBOK (Project Management Body of Knowledge), which is based on process approach, is the development of a number of sustainability indicators and their implementation in the initiation and planning processes. In this standard environmental impact and social needs are considered in business analysis along with market demand and consumer preferences. In the standard P2M built on a value approach, there is an interpretation of the project as the development value of the end product, which is determined by social and corporate ethics, and sustainable growth that is environmental care. Standard ICB, based on the competence approach, suggested behavioral competences of project managers social responsibility and sustainable development orientation as a part of ethical properties (Gareis, Huemann, 2011). Figure 1 shows the relationship of the sustainability criteria with the functional areas of project management. In particular, economic sustainability is manifested through the provision of investments profitability through such functional areas as project cost management and project scope management. Environmental sustainability is manifested through special technologies and methods of using transport, energy, materials in such functional areas as: communications management, project risk management, supply management, managing project quality, managing time frame. Social sustainability is

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 manifested through the realization of human rights, labor practices, and ethical standards in such areas as: human resource management, management of content of project work, management of the project integration. Thus there is a fundamental difference between classical project management and sustainable project management. The difference lies in the fact that in classical understanding a project is always time-limited set of works. Usually, projects have relatively short horizons of its complete. A relatively short cycle of projects can be seen as a limitation for the implementation of sustainable development in project activity, because sustainable development is effective in the long term. However, the value of sustainable project management philosophy is the understanding that projects have not only short term effects but also long-term ones. Therefore, it’s a period of awareness that criteria for sustainability should be key performance indicators of projects, and project management should be based on the values of sustainability. Earlier it was noted that the projects’ environmental orientation gives a long-term economic effect. But you can call other effects and benefits from the use of sustainable management concept in project management: Saving of projects resources, including energy, which has access to the cost- effectiveness of projects and their management. Search for opportunities to reduce the impact on the environment, the inclusion of business entities implementing projects in sustainable entrepreneurship. The ability to use "green" standards, which allows extending the range of key performance indicators of projects, including the indicators from the "green" standards. Additional marketing tool, as "green" projects and "green" project management is able to attract the attention of consumers. Strengthening the corporate culture, attracting the best specialists, which is also associated with the image and popularity of the ideas of "green" economy and "green" management. Reduction of project risk through the using of environmentally and socially responsible business. Is Russia ready for transition to sustainable development and sustainable project management from the view of norms, values and beliefs about the managing ethics? To answer this question, we divided and considered this concept as "weak sustainability" and "strong sustainability". Proponents of strong sustainability are hard, often "uneconomic" position on many economic development issues: stabilization or reduction of the economy size, the priority of direct regulation, a strict limitation of consumption, etc. Proponents of weak sustainability prefer economic growth taking into account environmental "green" measure of economic performance, the widespread use of environmental economic instruments (pollution charges, etc.), change of consumer behavior, etc. With all the differences of positions both of them oppose industrial development concept, which is based on the unlimited development of free market, orientation on purely economic growth, exploitation of natural resources, faith in the infinite possibilities of scientific and technological progress, maximizing consumption, etc. Management of many projects in Russia, especially in industry, is based on a man- made concept. Even if the subjects of management declare an importance of "green" management principles, but their approaches and actions are often anti-environmental in nature.

INDUSTRIES SUSTAINABILITY: RUSSIA GUIDELINES

But there are some entities that reaffirm their solidarity with the concept of sustainable development and already implemented projects, going towards supporting of "weak" sustainability. For Russia in the coming years, the more appropriate will be the version of "weak" sustainability. If the project management will apply measures, consistent with the idea of "weak" sustainability, it will be a good step towards entering into a single worldwide system of maintaining the sustainable development. Professor V. I. Danilov-Danilyan has formulated four directions of Russia's transition to sustainable development, which are still relevant (Danilov-Danilyan & Losev, 2000): 1. Preserving the surviving natural ecosystems, the lost ecosystems restoration. 2. Cleaner production: the transition to environmentally sound technologies that minimize environmental risk and negative impact. 2. The normalization of consumption, implying a gradual reduction, and eventually stop the mindless consumption that brings harm to humans and environment. 3. The normalization of the demographic processes on the basis of family planning in compliance with the humanistic principles: every person born has the right to a decent life. For Russia, the first two points are central for modern period of transition. Sustainable project management is also at this stage is affected to a greater extent the second direction – the greening of the projects. The sustainable project management cannot be implemented outside the context of the overall national policy of greening the economy, which should become the basis of economic reforms, including industrial reforms. In order to implement project management in industries and national economy in general it is necessary to create complex prerequisites and conditions. Such conditions may include the following: 1. Encourage all stakeholders of the project to achieve maximum utilization and complex processing of raw materials (oil, ore, wood, etc.). 2. Incentives for stakeholders to recycle and use wastes as secondary resources (scrap of metals, paper, glass, rubber, plastics, etc.). 3. Primary support for projects which include the development and use of better methods of environment protection from emissions and discharges of pollutants, noise, radiation etc. 4. Stimulating and supporting projects focused on energy savings and the gradual replacement of non-renewable energy sources in an environmentally clean, alternative power solar, wind, hydrogen, etc. 5. The transition to new economic mechanisms in environmental management, stimulating conservation activity of enterprises, development of market methods: 5.1. sale of rights, quotas and licenses for environmental pollution on the experience of the United States and the European Union; 5.2. implementation of ecological expertise of economic development projects and environmental audit of existing enterprises; 5.3. improvement of pricing policy for finished commercial products, services and natural resources. The real value of environmental resources needs to be reflected in prices. Creating these conditions requires the modernization and innovation of technological and technical nature. In particular, it is necessary to carry out the translation of industry mainly on the qualitatively new energy - and resource-saving technological processes; take steps towards the full satisfaction of the needs in equipment and devices providing the acceleration of scientific and technical progress in environmental management and

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 environmental protection; to increase the flexibility of existing production facilities and technologies for environmentally and economically efficient processing of natural resources, etc.

Conclusion

Summing up, it must be stressed again that the Russian economy, particularly industry, are experiencing a crisis that requires a serious innovative change and economic reform. Economic reforms in industrial sectors are implemented through different projects and programs that require professional management. That is, these reforms can successfully provide innovative changes in governance mechanisms, in particular, implement project management principles. At the moment project management actively implemented in Russia at all levels of state and municipal authorities. However, project management is only a set of technologies and tools project management, which proved its effectiveness through the active use of the world economic community. Project management becomes much more valuable if it is based on a particular ideology. This ideology today in the world recognized the concept of sustainable development. Accordingly, there is a need to integrate sustainable development and project management. From a brief examination of the sustainable development concept its global character can be seen, the intertwining of the concept of complex environmental, economic, and social problems and guidelines for their solution. Given definitions of sustainable development, its criteria are not universal because of the complexity of the phenomenon. Presented in this work the essence of sustainable development shows the most important benchmarks when choosing a policy for economic reform. An important direction in the formulating of the development concepts should be the consideration of holistic environmental-economic approach to economic growth, the change of anthropogenic development for sustainable. The concept of reform is necessary to change the existing economic paradigm, the transition to the idea of balanced and sustainable development to prevent global and local ecological, social and economic crises. Sustainable development and sustainable project management are designed to orient economic activity to meet current economic and social needs without compromising the ability to meet the needs in the future. The idea of linking the strategy of the future security of Russia and its transition to sustainable development comes from the fact that security of "unsustainable development", a model of which is being implemented in Russia and in other countries of the world, is basically impossible. The transition to sustainable development involves ensuring safety in all respects.

References:

Anshin, V. M., Pertseva, E. Y., Glazov, E. S. (2015). Project approach to the implementation of the sustainable development concept in the company. Infra-M. 268 p Danilov-Danilyan, V. I., Losev, K. S. (2000). Ecological challenge and sustainable development. Textbook. Progress-Tradition, 416 p Filippova, M. G. (2013). Analysis of the current state and development of Russian industry in the period of implementation of Federal cluster policy. Young scientist. 11. p. 495-500 Industry of Russia. 2016: Stat. compilation. Rosstat. M. 445 p.

INDUSTRIES SUSTAINABILITY: RUSSIA GUIDELINES

Gareis, R., Huemann, M. (2011). What can project management learn from considering sustainability principles? Project Perspectives. The annual publication of International Project Management Association. 33. p. 60-65 GPM Global. (2014). The GPM Global P5 Standard for Sustainability in Project Management. Retrieved on 03/02/2014 from http://greenprojectmanagement.org/p5 Grevelman, L., Kluiwstra, M. (2010). Sustainability in Project Management. A case study on Enexis. PM World Today. 12. http://www.pmworldtoday.net Kryuchkova, O. M., Guzenko, A. D. "Green economy" as an element of sustainable development: current status and prospects. Scientific-methodical electronic journal "Concept". No. 35. 2016. p. 44-48. URL: http://e-koncept.ru/2016/56730.htm Labuschagne, C, Brent, A.C. (2005). Sustainable Project Life Cycle Management: The need to integrate life cycles in the manufacturing sector. International Journal of Project Management. 23(2). p. 159-168 Manaikina, Ekaterina. (2015). Project management in the company, taking into account the principles of sustainable development: thesis ... of candidate of economic Sciences: 08.00.05. (Place: National Research University "Higher school of Economics"). Moscow. 196 p Pilot innovative territorial clusters in the Russian Federation. (2013). Editorship of Gokhberg, L. M., Shadrina, A. E. Moscow: National Research University "Higher school of Economics". 108 p Silvius, A. J. Gilbert, Schipper, Ron P.J. (2014). Sustainability in Project Management Competencies: Analyzing the Competence Gap of Project Managers. Journal of Human Resource and Sustainability Studies, 2, 40-58. Published Online June 2014 in SciRes. http://www.scirp.org/journal/jhrss, http://dx.doi.org/10.4236/jhrss.2014.22005 Statistical review. Rosstat M. No. 3(86). 2013. URL: http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/ru/statistics/publications/catalog/doc _1140076462969 Talbot, J., Venkataraman, R. (2011). Integration of sustainability principles into project baselines using a comprehensive indicator set. International Business & Economics Research Journal. V.10 (9). p. 29-40 Taylor, T. (2008). A Sustainability Checklist for Managers of Projects. http://www.pmforum.org/library/papers/2008/PDFs/Taylor-1-08.pdf

Paper submitted 08 July 2017 Paper accepted for publishing 02 September 2017 Paper pubslihed on-line 09 October 2017

IMPACTS ON CONSUMER BEHAVIOR: THE CASE STUDY ON VIETNAM MULTI-LABEL FASHION STORE

Irina V. Onyusheva

Panirat Kaewpradit

Stamford International University, Thailand, Bangkok

The purpose of this paper is to study customer behavior which nearly always can be impacted by the environment around a particular store. There is a tremendous rising demand for fashion items in Vietnam. Recently, some Vietnam designer brands have become available at the market without own flagship store. A multi-label fashion store representing a variety of designer brand items enable the Vietnamese to select the needed appreciating the whole variety of fashionable quality outfits in one place. The multi-label fashion store is often difficult to manage in terms of planning and design, also, it is very different from a flagship store. Becoming aware of the environment surrounding a multi-label fashion store enable marketers to create new opportunities in terms of sales. This study has been carried out in the form of surveys so that to analyze the behavior in Vietnamese consumers purchasing fashion items. This has helped us understand how multilabel fashion retail stores are using the merchandising display and space layout so that to influence Vietnamese customers’ behavior, in both positive and negative ways. Therefore, marketers may consider our results as important information to be used further to improve the store environment in order to meet customer need better and thus – to enhance sales.

Keywords: fashion, multi-label fashion store, behavior, Vietnam, influence, marketing.

Introduction

Irina V. Onyusheva

PhD in Economics, Dr.h.c. of IANH, Associate Professor, Corresponding Member of Academy of Pedagogical Sciences of Kazakhstan, Academician of International Informatization Academy, member of the Editorial Board of the 'Polish Journal of Management Studies' (Scopus, SJR, WoS). Research Field And Scientific Interests: formation, ensuring and increasing economic competitiveness on both micro- and macro- levels; human capital development; HR management; knowledge economy; project management. She is the author of more than 70 research publications, author of an individual scientific monograph named “Human capital in context of national economic competitiveness: formation factors and development prospects» (2015) awarded as "Best educational edition in economic field" in the framework of the XXVI international book fair of educational publications (Sochi, Russia, October 8-11, 2015), and Gold medal “European Quality” (ESIC, Germany, Russia, April 4, 2016). E-mail: [email protected]

Panirat Kaewpradit

Stamford Internatonal University interests – Marketing, Management, Consumor Behavior E-mail: [email protected]

THE IMPACT ON CONSUMER’S BEHAVIOR

Nowadays, fashion retail stores are free to use a wide variety of concepts in their sales. Moreover, they are forced to do so because the number of people who prefer online shopping for fashion items is only increasing all the time. There are many new designers but they do not have their own retail stores because opening a separate, own flagship store is always very costly. Thus, most of these younger designers promote and distribute their products online. However, many consumers have bad experience with purchasing fashion items online. The most commonly disturbing issue is unfit clothes due to wrong size or because the actual color turns out to be different from that on the screen (thus, sometimes not matching consumer’s complexion). Hence, we have many reasons to state that fashion industry belongs to those few industries which e-commerce cannot replace totally. Retail stores are still crucial in this regard since they enable consumers try products on physically. The multi-label fashion stores are the retail stores that present a variety of fashion labels, concentrating mostly on clothes and accessories. The advantages of multi-label fashion store are that consumers have more choice and more opportunities in mixing and matching fashion items in one place at the same time. Thus, understand what factors, within the same store, impact on consumer behavior is very important for marketers, since this understanding contributes to planning of all further potential sale strategies. Vietnam belongs to the countries in which fashion industry has been markedly increasing in the recent couple decades. Inter alis, we can mention more TV programs fashion-related topics, such as the Face Vietnam, for example. There is also a fashion street in Ho Chi Minh city where can we find both flagship stores and multi-label stores along the street which sells the items designed specifically by Vietnamese designers. Therefore, Vietnam is an interesting country in this regard since its national fashion industry is rising reflecting the development of national economy overall. This paper would be very helpful for those especially who would like to operate multi- label stores in Vietnam’s large cities, first of all. Namely, we have found that environment around the multi-label stores in Vietnams has a significant impact on consumer decision- making.

Literature Review

Fashion industry In general, the picture of fashion industry is high-fashion on magazine covers and/or runways’ shots. According to the clothing and fashion encyclopedia (2005), fashion industry is as simple as “the business of making clothes, but that would omit the important distinction between fashion and apparel”. To clarify, apparel is functional clothing to serve humanity's basic needs while fashion concerns one’s own prejudices of style, individual taste, and cultural evolution. According to (BOF & McKinsey&Company, 2017), fashion industry is the world’s seventh largest economy. Sometimes, the growth of this market in a city can reflect the economy in this city because the increasing purchasing power creates more demand in fashion items (Chen, Zhue & Yu, 2016). We can see that New York, Tokyo and Los Angeles are in the top-10 largest fashion markets as of now and also are expected to continue to be in the top010 until 2025, at least (BOF & McKinsey&Company, 2017). Other cities with

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 millions of population also have large markets which means they have high demand but also tight completion when it comes to fashion. However, we need to keep in mind that fashion items are not the basic need of the humankind, and if/when the economy is slowing down or declines, the demand for fashion is also decreasing. This is what makes this industry interesting to study: how fashion businesses sustain under the changing market competitive conditions.

Fashion and consumer behavior When we talk about behavior, the very first thing that we should consider is motivation. According to the Oxford Dictionary, motivation is defined as a reason or reasons for acting or behaving in a particular way. Maslow’s hierarchy of needs is the most well- known humanistic theory motivating force from inside a human, as it was initially developed by Abraham Maslow (Heffiner, 2014). The best way to understand this theory is the pyramid (see Figure 1) which shows the levels of human needs. According to this pyramid, people are motivated to accomplish the next level up once the lower level is fulfilled. Normally, human basic needs are related to merely physical survival such as food, rest and warmth, and these are the core motivates for our behavior. After that, once all the basic needs are fulfilled human behavior is stimulated by psychological needs mostly, including relationship and feeling of accomplishment and then goes the very ultimate need of self-fulfillment which is self-actualization. The needs that are motivating consumer behavior in relation to fashion are psychological needs and self-fulfillment needs. For example, Japan, United States and England are all developed countries and also top-3 largest fashion markets of the world (BOF & McKinsey&Company, 2017). In relation to the pyramid below, majority of population in these countries have high quality of living and also have enough purchasing power to make their physical needs fulfilled to the very maximum (or even over it). Therefore, the need for uniqueness and fashion design is high in many developed countries because fashion items in such cases are reflecting a certain social status (Chen, Zhou & Yu, 2016).

The needs that motivate consumer behavior in fashion are self-fulfillment needs and psychological needs.

Figure 1 - Maslow’s hierarchy of needs (Source: McLeod, 2016)

THE IMPACT ON CONSUMER’S BEHAVIOR

Environment There are many studies on the stores’ environment effects since this environmenta is the external force in relation to shopping behavior of consumers. Thus, the same environment may enable the marketers shape consumer needs and in this way – stimulate consumer demand (Rath et al., 2008). However, external factors influencing the fashion purchasing intensions of consumers vary depending on different experiences and backgrounds of people, including education, age, gender, cultural background, career path, ethnicities and geographical location. Therefore, the store’s environment is shaping the marketing strategy to be applied to communicate with target consumers. Moreover, different environments impact on different group of customers depending on their specific experiences and background. Therefore, retailers must always know who are their potential customers. To illustrate this, a typical adult consumer would prefer a store with warm and comfortable atmosphere, with paintings, lounge music, large space and soft lighting. On the other hand, to attract younger consumers, a story might need trendy posters, graphics and electronic dance music in a store (Frings, 2005). Fashion retail stores always change their window displays for special events, different festivals or in case of their latest collection, because window is the most attractive tool among all store’s visual statements. Usually, people receive stimulants through their five senses: vision, touch, smell, hearing and taste but in fashion business, vision is the most obvious stimulant (Rath, Bay, Petrizzi & Gill, 2008). For example, successful window display when new collection is available in the store draws traffic of customers willing toinspect and touch these new products. According to Briggs (20160, although recently many consumers prefer to browse fashion items preliminary in online store, 53% of them still prefer inspecting products in stores in order to make their final purchase decision. This is yet another evidence that consumer behavior is impacted by the store environment. Thus, if the store environment could meet consumer expectations and satisfy their experience during shopping, this leads to decision-making in purchasing fashion products even they have already reviewed online.

Retail store Retail stores have many platforms including flagship stores (monobrand stores), multi- label fashion stores, department stores etc. And the latest form of retail store is online stores (Witte, 2016). In this study, we focus on multi-label stores and own flagship stores.

Multi-label fashion Store A multi-label fashion store is a type of retail platform providing a variety of fashion labels which sometimes also offer its own label in a store, ranging from clothing to accessories (Li & Ho, 2010). An example of the famous luxury multi-label fashion store in South-East Asia is Club 21, which was originally established in Singapore, approximately 45 years. ago Club 21 carries high-end fashion label such as Lanvin, Marni, Carven, Marc Jacob, Proenza Schouler, Alexander Wang and 3.1 Philip Lim. A multi-label fashion store is not only available for high-end brand, but also for local fashion designers because establishing own flagship store is very costly for new local designers.

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The advantage of being represented by a multi-label fashion store is that this creates an opportunity for akk customers to mix and match the products of different labels in the same time while monobrand store cannot afford this due to rather limited choice. However, selecting brands to be put on the store’s shelves and windows is very important in this case. The store needs truly strong brands because only those brands may have more chances to sell fashion items to survive at the market (Witte, 2016). Nowadays, this type of store has many direct competitors and also have indirect competitors in the form of online stores.

Flagship store A flagship store is a retail form offering complete range of collection of a single fashion brand, and is usually owned by a brand itself (Witte, 2016). The flagship store generally is the lead store in a retain chain or brand’s very first store or largest store, often acting as a showcase to draw customer attention, thus enabling customers have more experience with products. Recently, many brands can have more than one flagship store to cover different prime locations in each area (Trotter, 2016). Zara and H&M are probably one of the best examples of famous and strong mono brand stores that have many fashion flagship stores located in major cities around the World. Zara and H&M offers wide range of fashion items from head to toes, offering at the same time affordable prices for middle-class people.

Consumers in Vietnam Vietnam in this context is probably one of those countries in which fashion industry is developing most intensively. One of the most persuasive examples in this regard is Ho Chi Minh city, where is a shopping street called Vo Van Tan street has emerged with flagship stores and multi-label fashion stores offering a variety of fashion items designed by local designers along the street. Vietnamese fashion retail industry has grown in line with the widening economy and according to the forecasts, it will continue to grow at least until 2020 (Marketline, 2016). As the use of Internet increases, online stores have their share of sales only growing, and this, naturally, lowers the shares of other players within the industry (see Figure 3). This means there is plenty of space for further growth when it comes to both multi-label fashion stores and flagship stores. Clothing, footwear and luxury items is the leading distribution channel in Vietnamese apparel retail industry, accounting for about 68% of the total industry's value.

THE IMPACT ON CONSUMER’S BEHAVIOR

Figure 3 - Vietnam fashion retail distribution 2015

The dynamics of the apparel retail in Vietnam shows that its price sensitivity varies regionally (Marketline, 2016) because clothes are perceived as closely linked to lifestyle and social status, especially in the main cities such as Ho Chi Minh and Hanoi. This provides the retailers with the opportunity to influence consumer behavior through external forces. According to Barnes report, although Vietnam has women’s clothing stores in the amount of more than 25.5% of that in Thailand, the sales value is lower than in Thailand for more than double (Barnes Reports, 2015). The key reason for that is because skillful labor in Vietnam has relatively lower costs. Local labels are able to produce with complicated styles and high quality under the price being lower than those of Thai local brands. This make the total sales values less than those in Thailand.

GDP % Growth

6,7 6,8 7 6,4 6,3 6,2 6 6,2 6 5,2 5,4 5 4 3 2 1 0 Year Year Year Year Year Year Year Year Year 2010 2011 2012 2013 2014 2015 2016 2017 2018

Figure 4 - Vietnam’s GDP % growth trend

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(Source: compiled by Lockett, 2017 & World Bank, 2017)

High GDP growth has been demonstrated by Vietnam in the past 6 years and this continued growth is expected to reach 6.8% in 2018, while population of the country is forecasted to be 91.7 million people. Therefore, establishing a fashion store in Vietnam is interesting because good economy can increase the purchasing power of the people. Hence, there will be more demand in fashion items to fulfill various psychological needs of the young and growing population.

The research problem, goal and objectives

The research problem The research questions in this study concerning consumer behavior and how a multi- label fashion retailer is supposed to build up the store environment according to its marketing strategy. It is crucial to focus on the following questions: - How environment of a multi-brand fashion store may impact on consumer behavior in Vietnam? - How differently the consumers perceive a multi-label fashion store and a flagship store? - According to a multi-label retail marketing strategy (which is most often the mix & match), should the retail store display products of different brands separately, that is, by brands, or should they mix all brands in a display?

The main goal of the research and objectives This research is focusing on fashion retail stores at Vietnamese market by surveying the people who have experience with both multi-brand stores and flagship stores in order to find significant environment factor that impacts consumer decision-making while buying fashion items in a multi-label store. The question here is whether consumers conduct differently in a different store environment when one wants to purchase exactly same product with similar price and available in more than one retail store. To answer this question, the following objectives have been identified: - To study different environments between multi-label fashion store and own flagship store. Some brands have their own channels to distribute their product, including e-commerce and their own flagship stores with the same price as at the multi-label retail. Therefore, for them it woud be very interesting to know what make consumers purchasing the product – in a flagship store or in a multi-label store. - To analyze different feelings arising from a visit to a multi-label fashion store and a flagship store. The multi-label fashion stores should know how to communicate with consumers through the store atmosphere in order to create more enjoyable shopping experience. - To develop marketing strategies concerning store image which can influence consumer behavior without considering product themselves. The result on this item would be providing valuable information to assist multi-label fashion stores in creating their marketing plans so that to draw more of consumer attention.

THE IMPACT ON CONSUMER’S BEHAVIOR

Research Methods

The methods of our research are comparative and associative analyses. Literature review begins the study in order to identify the concept of fashion retail store and how its environment impacts on consumer behavior. Primary data collecting by means of questionnaires here is an important way to terminate this research because there is no openly available and already gathered data on the same issues (Kotler, 2000) for Vietnam. Questionnaires have been sent by e-mails and also face-to-face surveys among consumers who have experiences with both multi-label fashion stores and flagship stores have been carried out in Ho chi minh city, Vietnam. This research methodology has been partially adapted from the previous research carried out in Sweden (Li and Ho, 2010). In addition, figures and graphs are based on the researchers’ own experience and are part of not only this research results, but also previous study of the same authors.

The Research Findings

Result and analysis Demographic factors Teenages: Teenage customers’ purchasing power is often low, thus, they tend to be rather thrifty when they shop, they expect the abundance of choices surrounded by the atmosphere of inexpensiveness in a store. Music is also an influential force for teenage consumers. 18 to 35 adults: The results of our research show that the target group from the age of 18 to 35 is concerned about the overall shopping experience including comfort, relaxation and health. The common sense of uncertainty about security has led this market segment “seek lasting value in both relationships and products” as well as an increased demand for luxury. Age 35 to 50 adults: This group of individuals does not follow any fashion style, instead, they shop according to what looks good on them. Another aspect of concern for this age group is fitness and well-being. They want to be defined in terms of their attitudes and education, health and wellness, adventure and excitement. This age group is often not the target group for the most of today’s retailers, however, very soon they may gain more importance as potential consumers who will substitute the others, leaving solely for web shopping. Social factors The social factor involves people present in the store environment. Sales people affect consumers in a store environment by their behavior. The performance of a sales person in turn might be influenced by the store environment too.

Consumer perception Inspiration that makes consumers enter the shop from the street mostly comes from the window display, especially in the case when consumers don't have any other specific reason or planned in advance intention to visit this particular shop. Thus, one of the most important factors in such type of motivation is that architectural style along with interesting window

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 display attract passersby to get in. The influence would be more continuous if the interior store environment also has its impact on on consumer behavior, see below.

Interior Design of a store can help support the brand image as well as underpin a successful retail strategy. Retailers rely on the store design in attracting and retaining customers once the latter are already inside. While some retailer prefers a more neutral store design, others like to shock, thus generating discussion. The factors revealed are showing that customers strongly recognized the differences in display between multi-brand store. Some of them mentioned that the different characteristics of a brand tend to decide on the store environment. Therefore, consumers have a very clear division about the store concept by experiencing its product display. Product presenting and Floor layout In a multi-label store where the space is huge and the range of fashion merchandise is quite wide, consumer should have a clear brands’ notification via well-designed orientation. Experienced merchandisers recommend to start by placing the largest categories and key brands first, thus they are taking the most of the available space and, hopefully, generate most of sales. Retailer should always try standing on the point where customers are making the decision – to step into the store, or leave. The main factor in this regard is to remember creating gaps between products or introduce a different type of fixture. Customers usually dont appreciate when all rakes of clothes looks the same. On the other side, customers will not interact with the products if they feel they should not touch them. Attaining the right mix of fixtures along with a correct floor layout are essential in creating comfort for all customers. Whether the store is small or big, customers need to have sufficient explanations about all brands available. Posters and advertisement are also playing a significant role as direction signs and at the same time they are sending messages about new fashion style knowledge and campaign concept. A strong brand image or attractive graphics can act as an anchor in reinforcing the store’s product category and highlighting the main style of merchandising in store.

Exterior With regard to the exterior selection, the survey has focused on the comparison of window displays among the stores, and what consumers think about retailers’ marketing strategies when it comes to lighting system, for example. Various aspects related to exterior selection reflects how a retailer builds up their exterior environment to attract more consumers entering and staying in the store. This is especially vital for window display, which is is the eye of a store. Window displays present a brand image overall, thus, it is supposed to be sending an attractive message to all consumers, current and prospective. In addition to this, retailers try their best to stimulate consumers’ shopping desire in many other, additional ways. One of the most common strategies is to show windows with merchandise even after the shopping hours. For this, they use special lighting for the whole window display or leaving some specific areas for the whole night. In this case, consumers continue their “eye shopping”, whenever they pass the stores, any day and/or any time of a

THE IMPACT ON CONSUMER’S BEHAVIOR day or night. However, on this there is also an opposing view that this strategy is merely a waste of energy rather than increasing shopping desires, and most of our interviewees have agreed with this statement actually.

Consumer attitude According to the survey, the most important factor for the respondents while they are hunting for fashion products is when a product “fits on me”, other important reasons following this in ranking are price and fashion style. Interestingly, the respondents are of the opinion that service in a store is the least contributing factor. Customer needs are also influenced by the store design and decorations used in a fashion multi-label fashion store. The respondents also usually decide how much time they would like to spend in a store, or what kind of products fit their style. According to the results obtained in this survey, most consumers spend around 11-30 minutes in a store, but many other consumers actually stay longer, depending on different conditions such as store design, display or product range. From the retailer’s standpoint, making customers stay in the store longer could bring more business opportunities. Apart from this, interior design of a fashion multi-brand retail store influences over 80% of the interviewees’ purchasing decisions. This result explains how a well-designed store may bring positive influences on consumers, and further share their attitudes.

Discussion

In the highly competitive fashion business, it would be better if marketers know well enough what efforts should be taken while creating well-designed store environment in order to attract more new consumers, keeping the loyal customers at the same time. In the empirical part of our research presented here (the survey) we have managed to acquire information on these issues from the consumer points of view. Nowadays, marketers are shaping the environment and atmosphere around the stores according to their marketing strategies or company directions, keeping in mind the fact that environment impacts consumer behavior but at the same time it is also impacted by their behavior. No wonder that marketers apply external force strategies to stimulate consumers toward their needs and desires. Our research shows that the key difference between a multi-brand fashion retail store and a flagship store is that the former offer more than one fashion labels in parallel and thus are able to sell a wide variety of fashion items in one place. At the same time, such shops face more challenges than flagship stores, not only because of the mix & match strategy application as to all merchandise together but also because they are supposed to display all products equally and in an equally attractive way to enhance overall sales.

According to the survey, most consumers visit multibrand stores weekly to monthly. This means that when consumers pass through the stores, they are easily attracted and influenced by a new window display of a new collection or by some some sort of events’ promotion. Applying the marketing strategy according to consumers’ needs naturally brings in positive influence on consumers through reminding consumers about fashion trends and thus stimulating consumers’ shopping desires.

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A positive emotion induced by the fashion factor is able to make any shopping experience more pleasurable, and this, in turn, can lower the gap between consumers’ perception and expectation. Interaction with the store environment, consumer’s current mood as well as satisfaction belong to the factors most associated with consumer further decision- making in relation to shopping choices. On the other hand, differences in experiences and personal background, such as age, gender, education of consumers or their social status are also significant factors influencing their perceptions and expectations as to a multi-label fashion store. The research indicates that the environment of a multi-label fashion store should target a certain group of consumers. Hence, retailers should select merchandise or labels which have the same target group.

Recommendations

The purpose of this study has been to find the environment factors with the most significant impact on consumer decision-making when it comes to buying fashion items in multi-label stores. Knowing these factors is supposed to help create effective marketing strategies through store atmosphere resulting in consumers having more impressive experience while they are shopping in Vietnamese multi-label fashion stores. However, to be more comprehensive and valuable for the fashion industry representatives, we are sharing some recommendations for further study. First of all, language barrier is one of those factors that may affect, to some degree, the analysis, especially when it comes to perceptions and feelings concerning multi-label fashion stores and others stores, even though our survey has been translated into Vietnamese. Hence, it would be great if this part is the research is fully conducted by local people, this would help investigate deeper all the related feelings and perceptions. Globalization today creates new norms especially when it comes to the fashion world. We can obviously see that today fashion style is the same or nearly the same in many countries, and new fashion trends go global within days. However, every country still has its own culture, experiences and perceptions. This study has proved to be effective and useful specifically for Vietnam. Therefore, same type of study should be conducted in another country so that to gather more valuable data. Lastly, the study has shown that customers enter store not only when looking or purchasing fashion items but also for the purposes of updating their knowledge about the current fashion trend. Retailers should take this into account too. Presentation of simple information and attractive display of the same can be applied and have an influence in customers attitude leading to decision-making. Future research should be done specifically on a sample of loyal customers in several multi-label fashion stores in Vietnam.

Conclusion

The overall goal of this research was to understand how the environment impacts on Vietnamese multi-label fashion stores. A well-designed fashion store environment can make consumers’ shopping experience much more pleasant and enjoyable (Solomon et al., 2006). Many researchers before us have already proved that the store environment impacts directly on consumer shopping experience.

THE IMPACT ON CONSUMER’S BEHAVIOR

From the literature review above we came to understanding the differences between multi-label fashion stores and flagship stores and what is the growth opportunity behind multi-brand fashion retail stores in Vietnam. Customers still tend to prefer making final decisions on purchasing fashion items in a physical store while they are more likely to review preliminary the same products online. Customer survey is always an important approach when one needs to know how consumers see and treat shopping and perceive the environment around the multi-brand fashion retail stores. Because all consumers are very different, the same environment in a store leads to either positive or negative feelings. According to the results of our analysis, recommendations provided concern mostly the visible aspect of the environment because in the fashion industry, visual sense is able to stimulate most of customers’ needs and desires.

References

Barnes Reports. (December 2015). 2017 The World Industry & Market outlook: Women’s clothing store industry. USA: C. Barnes & Co. BOF & Mckinsey&Company. (2017). The State of Fashion 2017. Retrieved from https://images.businessoffashion.com/site/uploads/2016/11/The_State_of_Fashion_2017.pdf Briggs, A. (June 6, 2016). Shoppers Prefer to Make Final Purchase Decisions In-Store, Despite Researching Online, Study Shows. Retrieved from https://www.forbes.com/sites/fionabriggs /2016/07/06/shoppers-prefer-to-make-final-purchase-decisions-in-store-despite-researching- online-study-shows/#5d164d035456 Chen, H., Zhou, J. & Yu, J. (November 1, 2016). Consumer perception and consumption behavior regarding luxury products in fashion industry. International Journal of Business, Marketing and Decision Science, 9. 84-97. Fashion Industry. (2005). In: Encyclopedia of clothing and fashion. Retrieved from http://www.encyclopedia.com/fashion/encyclopedias-almanacs-transcripts-and-maps/fashion- industry Frings, G. S. (2005). Fashion from Concept to Consumer. USA: Pearson Education inc. Heffner, C.L. (2014). Chapter 7: Section 2: Motivation. Retrieved from https://allpsych.com/psychology101/motivation/ Kotler, P. (2000). Kotler on Marketing: How to create, win and dominate markets. UK: CPI Group Ltd. Li, F. & Ho, J. (2010). The influences of physical environment of multi-brand fashion retail store on consumer’s behavior. Retrieved from http://bada.hb.se/bitstream/2320/7727/1/2010.13.4.pdf Lockett, H. (2017). IMF lowers 2017 GDP forecast for Vietnam. Retrieved from https://www.ft.com/content/ae0eec25-c0c3-39d0-92b9-2fde84a9b1ad Marketline. (2016). Apparel retail in Vietnam. Retrieved from https://www.marketresearch.com/MarketLine-v3883/Apparel-Retail-Vietnam-10329500/ McLeod, S. (2016). Maslow’s Hierarchy of Needs. Retrieved from https://www.simplypsychology.org/maslow.html Motivation. (2017). In English Oxford living Dictionaries. Retrieved from https://en.oxforddictionaries.com/definition/motivation Rath, P.M., Bay ,S., Petrizzi, R. & Gill, P. (2008). The Why of the Buy. USA: Fairchild book. Solomon, M.R., Bamossy, G., Askegaard, S. & Hogg, M.K. (2006). Consumer Behavior: A European Perspective. New Jersey, USA: Financial Times/ Prentice Hall. Trotter, C. (September 5, 2016). What is a flagship store?. Retrieved from https://www.insider- trends.com/what-is-a-flagship-store/

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Witte, S. (2016). What potential strategies for multi brand stores can countervail the increasing competition from mono brand stores?. Retrieved from http://kennisbank.hva.nl/document/642209 World Bank. (2017). GDP growth (annual %): Vietnam. Retrieved from https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG

Paper submitted 14 June 2017 Paper accepted for publishing 09 September 2017 Paper pubslihed on-line 30 November 2017

THE IMPACT OF TOURISM ON REGIONAL ECONOMY DEVELOPMENT

Irina Pavlenko

V. I. Vernadsky Crimean Federal University, Simferopol, Russia

The study considers the structure of regional tourism sector as a factor of socioeconomic development in the Republic of Crimea to identify the priorities and parameters of regional sustainable development. Methodological basis for this research is a system approach to studying the main indicators characterizing the current state of tourism, application of statistical methods to analyze economic activity. Main parameters and directions of tourism development are outlined taking into account the provisions of the strategy for socioeconomic development in the Republic of Crimea until 2030, the effective implementation of which will boost for the development of regional tourist infrastructure, thus attracting more of new tourist flows.

Keywords: tourism, destination, resource conservation, demand

Introduction

Contemporary trends of tourism market development show that tourism industry keeps its sustainable position among other areas of trade in services. According to the World Tourism Organization (WTO) data, tourism generates about 10% of the global GDP, and also, more than one third of the global services and 7% of the world exports (UNWTO Tourism Highlights..., 2016). The leading place of tourism industry in socioeconomic development of many today’s states has been noted in various international agreements. For example, the Hague Declaration on tourism notes the transformation of tourism is necessary for the life of many individuals and contemporary society in a whole, tourism, at this, is also an important form of free time spending for individuals, and an important tool for interpersonal relationships, political, economic and cultural ties’ strengthening etc. (The Hague Declaration on Tourism..., 1989).

Irina Pavlenko

Associate professor in V. I. Vernadsky Crimean Federal University, Simferopol, Russia. Research interests are concentrated around tourism industry, hospitality, touroperating, government regulation and stimulation of tourism market

E-mail: [email protected]

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Domestic legal acts also recognize tourist activity as one of the priority sector within the national economy of Russian Federation. In the Federal law of Russian Federation "On Tourist Activity" the positive impact of tourism on the socioeconomic environment is mentioned quite specifically. The definition of tourism industry as the main factor in social and economic development of the Republic of Crimea is relevant, since tourism is one of the leading sectors for regional social and economic growth that contributes to the revitalization of Crimean economy. It also has its impact on the solution of the number of economic and social issues as it is defined by the Strategy of Socio- Economic development of the Republic of Crimea until 2030. Due to active modernization and infrastructure restructuring in the Crimean region, there is a discrepancy between certain indicators characterizing the state of the tourism industry in comparison with similar indicators for some other subjects of Russian Federation. This factor significantly undermines the image of the Republic of Crimea as a unique region with a huge natural, climatic, historical, cultural and recreational potential. The research purpose is to highlight the main parameters and development directions based on the statistical analysis of the main indicators characterizing the current state of tourism in the Republic of Crimea, which will create an active impulse for the advanced tourist infrastructure formation. The research objectives, formulated according to the research purpose above, would be as follows: – to analyze the main indicators that characterize the state of tourism in the federal districts of Russian Federation; – to describe the importance of tourism as the main factor of sustainable regional development; – to analyze the situation with labor force in the tourist and sanatorium-and-spa complex; – to identify the features of active employment policy in the field of tourism; – to highlight the main parameters and priority directions for tourism development in the region in question. The central research hypothesis can be thus formulated as follows: Tourism belongs to one of the leading sectors in regional socioeconomic growth which contributes to revitalization of the economy in the Republic of Crimea and also has its positive impact on the solution of many regional economic and social issues.

Literature Review

Due to its economic and social importance the issues of tourism development are widely represented in both foreign (Mathieson et al., 1982; Stynes, 1997; Bojanic, 2016; Dincer et al., 2015) and Russian studies (Kotlyarov, 1978; Karchevskaya, 2008). For example, determining the degree of tourism industry influence on the economy of a host region, A. Mathieson and G. Wall set "economic effect" in a broad sense to refer to primary and secondary impacts, costs and benefits from tourists according to the regions of destination (Mathieson et al., 1982). Stynes (1997) investigated the economic impact of tourism industry by tracking and grouping all the related financial flows.

THE IMPACT OF TOURISM ON REGIONAL ECONOMY

In his studies Kotlyarov, E. A. emphasized that "the greatest effect on the development of recreational facilities can be achieved only by means of a systematic, organic linking to other related industries. Therefore, territorial and recreational complex is a combination of recreational facilities and the related infrastructure companies, united by close industrial and economic relations as well as the joint use of geographical position, natural and economic resources of a territory" (Kotlyarov, 1978). Karchevskaya E.N. analyzing the regional features of tourist-recreational potential formation evaluates the regional significance of various criteria used. Such as, for example, endurance factor (area’s saturation with natural, recreational, cultural and historical resources and their attractiveness to potential tourists), the environmental factor (measured through the indicators of radioactive contamination, anthropogenic transformation and ecological balance), the consumer factor (estimated in terms of tourist flows’ intensity as well as the capacities of hotel, transport, catering, leisure and entertainment infrastructures (Karchevskaya, 2008).

Results

Special importance of tourism as the main factor of sustainable regional development is related to identifying its three basic aspects: – economic (the support of long-term viability and active development of tourist organizations (enterprises, institutions, agencies) and destinations; improving employment etc.); – social (increase in quality of population’s life in a region; security in the process of needs’ satisfaction in leisure, recreation, travel without discrimination by gender, religious beliefs etc.); – environmental (minimization of pollution, use of scarce resources for the organization of the main types of tourist activities, the protection of cultural heritage etc.). In practice, it is assumed that a certain balance must be established and maintained between these parameters thus guaranteeing long-term sustainability, not only within the analyzed industry, region, but also for various types of economic activity and different spheres of life in the Republic of Crimea. Figure 1 presents the impact of tourism on the development of various other economic activities and different spheres of life in the Republic of Crimea. Table 2 presents the main indicators characterizing the conditions within the tourist sphere in the Republic of Crimea in the period from 2014 to 2015. During the study period (see Table 2) the number of hotels and similar accommodation facilities in the Republic of Crimea has been significantly reduced (11.3%). Such a dynamics testifies for the decrease of regional tourism development and hospitality efficiency. All this leads to the increase in revenues from the accommodation services provided by 183,1%, including the increase in the number of year-round beds by 45.3%. This was possible due to increased product offer on the side of tourist organizations (enterprises) in the region. Currently, tourist and sanatorium-resort complex of the Republic of Crimea is experiencing rapid changes, the primary of which is related to optimization in the management of human resources as the key strategic component in tourism activity of any sort. Under changed economic and political conditions human resources have the highest profitability among all types of the resources serving to support the tourist industry

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 development because the costs of their training, maintenance and development are incomparable with the socioeconomic effect which the society and tourists get from the improved and well-maintained human and labor potential.

Construction Revenues of the Republican budget

Transport

T The labor market: ASPECT KEY ON IMPACT Тrade O increased employment U of population R Social Insurance I S M Environmental impact Healthcare OF ECONOMICACTIVITI

LIFE S OF Financial activities (in Social Impact particular, banking S services) E

C Cultural Impact Hotels and T IMPACTON TYPES Restaurants O R Balance of Payments Agriculture

Figure 1. The impact of tourism on the development of various economic activities and different spheres of life

The strategy of HR preservation in tourism and resort complex Under today’s conditions of socioeconomic development of the Republic a special role should be given to optimization of the general personnel policy and social protection of workers in tourism overall and the sanatorium-resort complex in particular. Availability of well-trained personnel, their qualification level, distribution, working conditions, wages, social welfare, logistical and technological support for all labor process determine the proper level of the provided professional assistance to all tourists visiting the Crimean Peninsula.

THE IMPACT OF TOURISM ON REGIONAL ECONOMY

Table 2. Indicators characterizing the current state of tourism in the Republic of Crimea (Statistical Yearbook, 2014; Statistical Yearbook..., 2015; Tourism of the Republic of Crimea..., 2016)

Year Indicator 2014 2015 The number of hotels and similar accommodation 194 172 facilities, units The number of specialized accommodation facilities, 198 187 units The number of accommodated persons, people 489465 911515 The number of accommodated persons with vouchers, 223948 462723 people The number of people receiving spa treatment, people 13366 28866 The utilization of cash places factor 0,16 0,26 Revenues from the services provided, thousand rubles 6012191,0 17019576,2 The number of year-round beds, units 20953 30444 The number of institutions specializing in child care and 249 217 working during the summer, units The number of children visiting the peninsula during the 53753 71126 summer season, people The number of public catering places, units 3765 3405 The number of tourist companies, units 71 48 The number of tourists served by travel agencies, people 31213 32964 Funds received from the sale of the tourist product, 454835,0 604935,5 thousand rubles

The basis of the development strategy of personnel in tourism and regional resort complex is predetermined by the necessity for training and qualification courses meeting the needs of all related organizations (enterprises, institutions etc.) in highly qualified specialists. The growth in professional knowledge and skills of personnel of the analyzed complex, rational use of their potential, in turn, will have its systemic effects on the other, no less important parameters such as financial resources. Table 3 shows that: – in collective accommodation facilities (hotels and similar accommodation facilities: resorts, motels, hostels etc.; specialized accommodation facilities: sanatorium organizations, rest homes, tourist camps etc.) since 2015 and on there is a positive trend of the increasing average number of workers (excluding external part-timers and non-listed employees) by about 9000 people (or 30%); 62% of them are women. 14% of the employees are working in public catering, 12% - as porters and maids; 11% are medical staff; and finally 3.5% - administrators etc. During the study period there is a reduction in the average number of external part-time workers and workers performing works under contracts by about 20% (274 people); the number of employees engaged in work during the high season only and also family members of individual entrepreneurs (IEs) take up about 5%; – in the institutions specializing in children’s recreation and rest (summer camps, health camps, tent camps etc.) the average number of full-time employees working during the

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 summer season has increased by 16% and amounted to 10158 in 2015, 37% of whom were educators;

Table 3: Staffing of tourism and sanatorium-resort complex in the Republic of Crimea (Source: Tourism of the Republic of Crimea..., 2016)

Year Indicator 2014 2015 Collective resources in the subsector of accommodation The average number of workers (excluding external part- 21099 30099 timers and non-listed employees) including: administrators 838 1013 managers 278 433 porters and maids 1943 3237 doctors 697 1098 nurses 2340 3141 catering personnel 3286 4242 Women among them 13183 18655 Average number of external part-time workers and workers performing works under contracts with limited 1372 1098 timing The number of employees engaged during the high season and family members of individual entrepreneurs 4024 3822 (IE) Organizations specializing in children’s recreation and rest Average number of staff, working during the summer 8772 10158 season including: educators, counselors 2650 3786 healthcare workers 525 634 Tourist companies The average number of employees at tourism enterprises by different types of activity, including external part- 540 464 time workers and non-listed employees including: tour operators 287 93 tour operators and travel agents 83 212 travel agents 62 62 tour guides 108 97

-with tourist companies staffing (including both tour operators and travel agencies), the situation is as follows: decrease in the average number of employees, including foreign workers and non-listed employees by 16%; a sharp reduction in staff numbers is observed in tour operators’ activities – by about 68%; meanwhile, the number of employees in tour operator firms and travel agencies has significantly increased – by almost 39%.

THE IMPACT OF TOURISM ON REGIONAL ECONOMY

Table 3 presents the principal indicators of staffing in tourism and resort complex of the Republic of Crimea in the period from 2014 to 2015. There is a range of problems related to personnel resources’ development in tourism and sanatorium-resort complex of the Crimea region, including: the inefficient use of the existing human resources; limitations in their regeneration, reduction in HR resources numbers, mainly due to outflow of specialists because of the seasonality factor - 75% of all organizations within the tourism industry and hospitality are operating according to the seasonal schedule (which means several months in a year all staff is literary unemployed and unpaid). Therefore, qualified specialists are trying to find alternative jobs, and during this search permanent jobs in organizations of a year-round type of operations are always most preferred ones. In general, organizations within the Crimean tourism and resort complex, according to the territorial offices’ reports of the State Institution of the Republic of Crimea "Center of Employment of the Population", need at least more 2750 employees every year. As a result of our study, it is possible to identify some of the key issues affecting the state of staffing of the tourist complex in the region in question: – lack of a comprehensive system of human resources planning, which would have taken into account the restructuring of the tourist complex under the changed economic and political conditions; Large share of personnel reaching (or already being at) the retirement age among medical staff, especially when it comes to various sanatoriums and healthcare resorts; – lack of an integrated monitoring system for staffing and (re)training of specialists with higher and secondary professional education etc.

Features of the active employment policy in the tourism sector The issues identified under these new conditions have become the top-priority prior task at the current stage of development of the regional tourist sector in accordance with its orientation on intensified modernization. In connection with that, functioning of the tourist complex in Russian Federation overall and the Republic of Crimea in particular is an integral part of the several state and regional policies at the same time, the priorities of which in the area of employment include, inter alia: – the development of scientifically-based approaches to the formation of a system of specialists’ preparation for the tourism and resort complex in accordance with the actual needs of the region; – ensuring the development and improvement of the policies oriented on employment and adequate basic needs of organizations within the tourism industry and hospitality; – saving efficient enough jobs and creation of new ones in the sectors in question; – developing a set of retraining measures and tools to promote further employment of those people who have recently lost their jobs due to restructuring of the sector and regional economy overall; – reducing the unemployment rate among young professionals, adjustment of training areas in educational institutions taking into account the specifics of the Crimean region; – preparation and implementation of target regional programmes for working population, development of measures to encourage employers’ self-development as well as

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 quicker employment of recent graduates from higher and professional educational organizations etc.

Tourism Development in the Republic of Crimea

AIM Deadlines

Basic tasks 1st stage: 2017-2020 2nd stage: 2021-2026 development of infrastructure 3rd stage: 2027-2030 for the sanatorium-resort and tourist complex, formation of

development of tourism and sanatorium-

s affordable and comfortable resort treatment aimed at year-round tourist environment itiveness, relevance and functioning

minimizing the number of tourist industry quality service

- increasing the level of d byd compet actors in the Republic of Crimea, acting services and quality of their high outside the legal field provision up to the world standards

EXPECTED RESULTS

formation of and modern the healthtourist resort

complex, characterize modernization of the system creation of tourist and of monitoring and statistics in recreational clusters modernization of collective the field of resorts and accommodation tourism formation of the preparation and training system for the sanatorium- ensuring the integrated sustainable development with resort and tourist complex the affordable and comfortable tourist environment

reduction of the impact from seasonality on the activities of the sanatorium-resort and tourist complex

Figure 2. The main parameters and directions in the development of tourism taking into account the provisions of the socioeconomic development strategy for the Republic of Crimea until 2030

Implementation of these and other measures would allow: – stabilizing the situation with highly qualified personnel, including that employed in the tourism and resort complex, improving the human capacity of the staff capable to provide proper tourist services; – raising the socioeconomic efficiency of employment policy implementation in the tourism and resort sector of the Republic of Crimea.

THE IMPACT OF TOURISM ON REGIONAL ECONOMY

Development priorities Taking into account the new possibilities of tourism development in the Republic of Crimea at the expense of integration in the economy of Russian Federation, we can distinguish a number of key parameters and trends (Fig. 2) It should be noted that effective implementation of the desrcibed parameters and outlined trends will create an impetus for further development of advanced tourist infrastructure so that to attract additional tourist flows, that may later allow the Republic of Crimea achieve the national economic average level rather quickly.

Conclusions and recommendations

According to the obtained results and our verification of the initially proposed hypothesis, the authors of the study have come with the following recommendations: – the state must guarantee the comprehensive sustainable development of the tourism industry, which will affect the level of accessibility and comfort within the tourist environment; – those types of tourism should be developed which are aimed at year-round operations. This means they will be able to expand the scope of their active period and thus increase the volume of sales of their tourist product; – to form a system of personnel training so that to attract more qualified personnel into the sanatorium and tourist complex. This will reduce the general level of unemployment among the local population, and at the same time adjust the areas of training in education organizations, taking into account the specifics of the Crimean region.

Acknowledgement

The authors would like to thank FSAEO HE "V.I. Vernadsky Crimean Federal University" for the given opportunity to participate in the program "Academic Mobility of Young Scientists of Russia – AMYSR" and visit Saint-Petersburg Institute of Business and Innovation.

References

The State Program of the Development of Resorts and Tourism of the Republic of Crimea for 2015- 2017 years from 09.12.2014 No. 501 (amended as of 22.03.2016, No. 104). URL: www.rk.gov.ru. Kotlyarov, E.A., 1978, Geography of Recreation and Tourism: formation and development of Territorial Recreation Complexes. M, 237. Pavlenko, I.G., 2014. The functioning of tourist and hotel complexes in the system of world economic relations and the cognitive-informational relations. OrelSIET. 2(28), 139-143. The Regions of Russia: socio-economic indicators, 2016. URL: www.gks./bgd/regl/b16_14p/Main.htm. Strategy for socio-economic development of the Republic of Crimea until 2030. URL: http://minek.rk.gov.ru/file/File/minek/2017/strategy/strategy-shortvers.pdf. The Federal law “On the bases of tourist activity in the Russian Federation” as of 24.11.1996 № 132- FZ. URL:

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http://pravo.gov.ru/proxy/ips/?docbody=&nd=102044374&rdk=&intelsearch=%EE%E1+%EE %F1%ED%EE%E2%E0%F5. Approval of the Global Code of Ethics for Tourism, 1999, General Assembly – Thirteenth session, Santiago, Chile, 27 September – 1 October 1999. Accessed from: http://ethics.unwto.org/sites/all/files/docpdf/unwtoresolutiona-res-406xiii1999.pdf Karchevskaya, E.N., 2008, Methodical support of regional development and spatial differentiation of tourism (on the example of Gomel region). Kaliningrad, 22. International tourism: legal acts, 2000, Moscow: Finance and statistics, 400. Polishchuk, E.A., 2014, Staffing of economic development and the efficient use of labor resources of the Crimean region. A multi-level system of economic training in the concept of sustainable innovative development of the country, 178-202. Statistical Yearbook of the Republic of Crimea. 2014, 2015, Simferopol: Crystal, 64-70. Statistical Yearbook of the Republic of Crimea. 2015, 2016, Simferopol: Crystal, 91-94. Tourism of the Republic of Crimea for 2015, 2016, Simferopol: Crystal, 28-33. Bojanic, D.C., Lo, M., 2016, A comparison of the moderating effect of tourism reliance on the economic development for islands and other countries. Tourism Management, 53, 207-214. Dincer, F.I., Dincer, M.Z., Yilmaz, C., 2015, The Economic Contribution of Turkish Tourism Entrepreneurship on the Development of Tourism Movements in Islamic Countries. Procedia – Social and Behavioral Sciences, 195, 413-422. Mathieson, A., Wall, G., 1982, Tourism: economic, physical and social impacts, Harlow: Longman Group Limited, 208. Stynes, D.J., 1997, Economic impacts of tourism: a handbook for tourism professionals, IL: University of Illinois, Tourism Research Laboratory, 32. The Hague Declaration on Tourism, 1989, Netherlands: Inter-Parliamentary Union, 42. UNWTO Tourism Highlights, 2016 Edition, Madrid: UNWTO, 15.

Paper submitted 27 June 2017 Paper accepted for publishing 11 September 2017 Paper pubslihed on-line 30 November 2017

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STRATEGY FOR BUSINESS SUCCESS: THE CASE OF YETI LLC

Irina V. Onyusheva

Kanchanatetee Vasuvat

Stamford International University, Thailand, Bangkok

In today’s ever changing business environment, an entrepreneur can easily become overwhelmed. It’s vital, though, to stay focused on your goals for the company and be able to form and develop an appropriate strategy for business success. As an entrepreneur, you also need to know who your competitors are. You also should understand the rival product or service that is being offering. This knowledge will help you better market your product or service to stand out, perhaps even using your competition’s weaknesses to your advantage. This article is devoted to strategic analysis of the YETI Limited Liability Company. YETI is a good example of a company going brand-first. It is considered in details the current strategies as well as providing alternative strategies for the future development.

Keywords: fashion, multi-label fashion store, behavior, Vietnam, influence, marketing.

Introduction

YETI Coolers LLC is an Austin, Texas-based manufacturer of outdoor lifestyle products such as Tundra, Roadie, Hopper, Tank, and Collegiate Coolers. The company also supplies drinkware, cooler accessories and replacement parts, as wellas apparel and gear which include hats, shirts, and the related products. YETI Coolers LLC has manufacturing facilities in Lowa, Wisconsin, also in the Philippines, and China. Back in 2006, YETI was

Irina V. Onyusheva

Kanchanatetee Vasuvat

Affiliation, titles Interests – Startegic Management, Marketing, Business Development E-mail: [email protected]

The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 launched by the brothers Roy and Ryan Seiders with a simple mission: to build the cooler we’d use every day if it ever existed (YETI, 2017). The Seiders brothers started the creation of innovative products from their own experience. They grew up with their father, who was designing fishing rods. Thus, they decided to develop the products for their own needs too. They needed the cooler that simply wouldn’t break. At the earliest stages already they decided that their product innovation would be based on the necessity and direct experience, not on market research and data analysis. YETI today maintains a wide range of various coolers. There are five options to fulfill the customer needs: Hopper, Tundra, Roadie, Tank, and Collegiate. YETI’s product prices range from $250 to $1,400, depending on a model.

Analysis of the YETI’s Current Strategy

YETI used a top-down pyramid marketing approach to create a product that previously was not even on the radar and thus they quickly became a household name for fishing lovers across the country. The company also became a frequent programming sponsor on popular hunting and fishing television stations. This strategy was based on the so-called influencers. YETI has built their brand on the back of an influential market. YETI Coolers infiltrated the shopper’s memories via conversations, interactions on fishing expeditions and broadcasted use of their coolers by the celebrities. This strategy worked, it has quickly transformed YETI Cooler from an unknown brand into a must-have product for thousands of hunters and fishermen. And they are continuing to advertise their brand on media in a similar manner till now. To build a strong brand, YETI leveraged the help of many influencers. Table 1 below proves the effectiveness of this advertising campaign when it comes to sales’ volumes in dynamics.

Table 1: YETI's sales growth Sources (Nasdaq, 2016), in mln USD 2009 5 2011 29 2013 89.9 2014 147 2015 468.9

In 2013, YETI conducted a brand tracking study which showed that there is only 4.4% awareness among their most important target groups of customer. Later in 2014, they began to introduce a new strategy which was based on such activities as hunting and fishing (Saporito, 2016). They expended their product line to include a soft cooler called ‘Hopper’. It is more portable and thus easier for carrying. More recently, their new line of drinkware products has been introduced to focus on the new target group of customers, who are basically everyone. This, obviously, helped to expand the range of potential customers dramatically.

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THE IMPACT ON CONSUMER’S BEHAVIOR

Branding Strategy

A brand is a concept that arises in the mind of consumers as some sort of perception. YETI uses this through the simple concept of communications model for all their products. Communication is important when it comes to branding, whether it is word of mouth, advertising, social media, public relations etc. YETI understands well the problems their customers may be facing and therefore they are offering the solution – everyday use durable and long-lasting coolers. YETI has been sending out messages that include all of their designs and value propositions. However, this was not the only reason why YETI remains to be well remembered and recognized by customers. Their customers are satisfied after their purchase, and that is “brand loyalty” already. The authors of this article have sort of personal experience with changing loyalty from Starbucks to YETI. The quality of this long-lasting cooler with stainless steel is so how high that all other options, potential and/or tested previously, are simply out of consideration. Branding strategy of YETI is incredibly effective in terms of selling all its products, building community, and generating the word of mouth marketing. The aim of this brand strategy is to use all available internal and external opportunities for brand development (Tilde Heding, Charlotte F. Knudtzen, Mogens Bjerre, 2009). This will be also described below in the SWOT-analysis.

Product-Driven and Customer-Driven Strategies

A product-driven strategy is usually applied when organizations start with their product first, that is, they develop a product and then search for a suitable market. YETI applied this strategy by focusing on its product – namely, design, features, capabilities (Martin, 2016). Introducing these products to the market came later on. What YETI did for their products is that they came from the simple needs of the founders themselves. They knew exactly what they wanted to sell because they had been using the product themselves. The Seiders brothers grew up in the hunting and fishing family so they knew too well what their potential customers needed from their products. Therefore, they managed to create products that were unique and distinctive from the very beginning. At that time, they expected that they would be the only player at the market making and/or selling this kind of coolers. Even though there were some companies producing and selling coolers similar to what YETI did. But YETI, from Day 1, positioned themselves as producers of the best cooler among all potential competitors. Customer-driven strategy is the strategy typically applied by an organization that knows well what customers really want and thus produces the products to meet the level of their ultimate satisfaction. No doubt, the Seiders Brothers knew their customer very well simply because they were customers of their own products. This leads us (and them too) to the assumption that YETI coolers will make customers satisfied. YETI was trying to run ahead of their competitors by taking a deep dive into new product categories, and in the process of this expanding their team grew from 20 to 55 people by the end of 2016 (Saporito, 2016). The product line expansion was rather radical as well, the newest product being a bottle opener.

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YETI’s competition

When someone creates good things and starts getting revenues for that, no doubt that others will soon be eager to follow and try to do the same. YETI is no exception in this regard, since today it is also facing the ever increasing competition. Among their competitors are such companies/brands as Igloo, Pelican 45 Elite, and Cabela’s. Both Igloo and Cabela’s have imitated YETI’s coolers and are actively selling them side by side. However, YETI can do nothing much about this situation other than find alternative retailers. More detailed information of YETI’s competitors is provided in Table 2 below. After carrying out the SWOT-analysis for the company in question we have come up with the following conclusions on the SWOT: Strengths YETI knows well the needs of their customers so they develop the high-quality product to meet the level of satisfaction. What makes them successful is their lasting impact on the minds of their customers. Also, they did a lot of creative advertising and sponsor the specialized TV programs so that to show their products in those programs. YETI’s coolers are the so-called “Grizzly Proof” which is type of certification by the Interagency Grizzly Bear Committee, not just an advertising campaign (Rodriguez, 2014). This means these coolers are designed to keep ice cold for very long periods of time, sometimes more than a day, depending on the temperature and preparation. For this, YETI launched the 5-minute movie about how strong YETI coolers are and that they can’t be destroyed by Grizzly Bear. That was one of the most creative ideas they came up with, in our opinion. Weaknesses The core weakness is that YETI products are quite expensive. If compared with others brand (even though taking into account the lower quality), YETI coolers are around 30–50% more expensive than their cheapest competitor. Another serious obstacle is that there is no shop outside the U.S., only shipping option available on their website. This leaves YETI very limited place in other countries. Opportunities Once YETI experienced some success with coolers, it has seen its market expansion. Since they were initially experts in designing coolers to keep cold longer than anything else, they also found an opportunity to create a product to keep heat longer like in coffee mugs. By that time, their name has already produced a feeling of reliability and quality among many customers. Threats Even these features are mostly in favor of YETI, since the latter managed to create markets that are attracting competitors who are trying to take over the market. Despite YETI being the best thermal cooler brand as of now, competition is still rather tough, moreover, it never stops to develop. The strategies of nearly all competitors mostly rely mostly on the high pricing policy of YETI. The construction of all competitive coolers seems to be the same, however, the price is much more reasonable. However, YETI has one strong point due to which other competitors still cannot win them – the brand loyalty.

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Marketing Mix

YETI maintains a position in the marketplace that can be strategically defined as a clear market segment. With the combination of their integrated marketing communication campaign, product lines and product mix, as well as the overall brand image, YETI has created an image of the brand that is durable, functional, and made for nearly all outdoor activities. In addition, the intrinsic and intangible benefits that YETI offers to all their customers contributes to the emphasized brand royalty. Their positioning strategy is focused on the customer relative to competitors. Their slogan ‘Built for the Wild’ (YETI, 2017) reflects their concentration on the “extreme outdoorsman” market segment.

Table 2 – Major YETI’s competitors (Source: compiled by the by coauthors)

Competitors Strengths Weaknesses Igloo Price Poor social media presence ‘Cool riser’ technology Fails to offer customers More informative website (it intangible benefits provides a comparison of several coolers, including those produced by YETI)

Pelican 45 Elite Longer warranty (lifetime, actually) Heavier cooler than YETI Numerous channels of distribution, Narrower product line i.e., Wal-Mart, Home Depot, Amazon, eBay etc. More extensive product mix, i.e., cases, pro-gear, backpacks, and flashlights Price scheme is narrower

New Product Design Repositioning of a brand always requires modifications to the marketing mix. These improvements will occur with both product and promotion. Concerning the product, modifications will be made to attract and gain new target markets. Customers will able to customize their YETI’s products using the website. For example, after customers click to choose the YETI’s product they want, they also will able to choose the sport teams’ logo and its placement, and then they also are able to choose the color of the selected product. Target Market Analysis To reposition their product, thorough analysis of the desired target market is necessary. For this, the brand’s primary and secondary segments have been analyzed as presented below in detail. Primary The primary target market consists of the alumni of the most famous universities in the U.S.A. These are college sports fans with an affinity for their teams and schools. This segment consists mostly of the season ticket holders that maybe emotionally affected by wins

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The EUrASEANs: journal on global socio-economic dynamics, № 6 (7), 2017 or losses of their teams. Individuals in this segment may become the regular purchasers of the apparel items, since they feel in such a way they are supporting their teams during the off- season. Secondary The secondary market consists of current students at universities with high-ranking football teams. This segment is very much similar to the aforementioned segment in that they also maintain the affinity for their university and its team. These individuals are young, lively, and are mostly sports enthusiasts. The two aforementioned market segments share a strong character which is an affinity for their college teams. Attending games is something both parties look forward to, and the experience of these event enhances their self-esteem and image. Since there is a strong relationship between the experience and the tailgater, there exists a good opportunity for YETI to penetrate these segments with a product that will enrich their game experience.

Creative Strategy

YETI products are grizzly-proof certified, meaning the body of the cooler is nature- tested and durable. In addition, coolers are available in a variety of sizes so that to fit different lifestyles and needs. The benefits that YETI offers to all their customers are quite numerous: enhanced self-image, beverage refrigeration, item protection, and a large scale of sizes. YETI also maintains a positive self-image and promotes the sense of belonging to a community. Another key creative feature is that YETI ensures both food and beverages remain protected throughout tailgating events, regardless any weather conditions. More, the hard exterior guarantees the cooler will be protected from any unexpected contact, including abuse.

Possible Future Development Strategies for the Brand

Even though YETI is a company producing coolers in the first place, the interesting question is whether they keep this market stable while expaning to some others? What should they do next? What can they really do to make it better, stronger, and still be the number 1 at the market, so familiar to them but still, with the increasing competition?

Making it more convenient Such a product as cooler is always heavy and huge. Therefore, the company’s also opted to sell wheels as an additional accessary, however, this automatically makes the product much more expensive. Solution: Add wheels and better handles which are easily attachable and same easily removable. Put the wheels with the main product when sell (included in a purchase). Produce / design lighter weight cooler which is easier to lift and hold.

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Partnerships / Alliance Not everyone knows YETI; it is popular but mosly within rather specific groups of customer as hunters, fishermen, and outdoorsmen. Thus, more endorsements would be needed from popular brands and/or TV programs to increase the future sales volume. Solution: Be partner with NIKE or other famous sport brands, or with outdoor brands, such as The North Face. Support / sponsor / buy commercials during popular sports event, i.e., Super Bowl, NFL etc.

Better customization YETI has very narrow choice of colors provided in stores, mainly 2 colors – white and pink for coolers. For tumblers, there are few colors more as Stainless Steel, Tahoe Blue and Black, however, some newer colors are also coming soon – Pink, Seaform and Olive Green (again, for tumblers only). Solution: Broader range of colors, provide more variety so that to meet the interests of new target groups, especially among young females. To offer the programme customizing YETI products to customers’ needs and preferences (for coolers, drinkware, hats, shirts etc.) using the logos of their favorite sports team. Some of these are already available.

Social Media YETI still has only a few target groups of customers who really know them well, outside the country (meaning, the US) it is nearly impossible to watch the TV programs they are sponsoring. Now they have their own social media like Facebook, Twitter, Instagram and YouTube channel, still, not many people outside their country are familiar with YETI. Solution: Add more advertisements via social media, i.e., YouTube Ads. Using influencers in other countries to advertise for them. Word-of-mouth is one of the most powerful and most effective way to generate sales at this market. Implementing contests and games to engage followers and build excitement. For example, let YETI’s customers post about YETI products in their social media accounts, for example, sharing publicly that they have received a discount for their next purchase. Print advertising may also be helpful in building customer awareness of the products and increasing sales.

Create interesting programs for end users/customers Since YETI is not popular at wider international markets, they should promote themselves more by making their customers happy, so that the latter refer about this brand to their friends more frequently. Solution: Introducing a referral program to increase customer loyalty and thus - sales. With enough customers referring their friends, family and acquaintances, YETI would be able to multiply their sales manifold. Rewards or club membership benefits for the most loyal customer.

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Sales Promotion Face-to-face interaction via sales promotion is a powerful tool of convincing when it comes to reaching YETI’s target markets. When the game day is coming, customers will always look for new products to support their team. Solution: Organizing YETI’s tent or booth nearby the tailgating area for demonstrations, giving potential customers the opportunity to ask questions about YETI’s products. More participation at promotion events so that to let customers have more direct experience with YETI’s products. Expand market outside the U.S. Even though on YETI’S website there is an option of shipping to other countries but it covers only small items, therefore, its effect on sales’ volume is rather limited. This limits their market for customers in other countries. Solution: Find suppliers in other countries to expand YETI products’ sales internationally. Open shops in other countries which have the largest potential in terms of sports and outdoor products sales - such as Australia, Japan, and some of the Southeast Asian countries.

R&D and Monitoring System YETI must use more of monitoring tools to control the quality of their products for higher customer satisfaction. Solution: To ensure the increasing stable growth, yearly surveys among customers are needed. YETI can, for example, award those customers who participated in such a survey by giving them a discount coupon so that to encourage their customers to be more willing to share their experiences with the company.

Conclusion

YETI is a good example of a company going brand-first. Everything they create builds on the community and showcases, designed specifically for the target groups of hunters, fishermen, and outdoorsmen. Anyone who identifies himself with these types of activities, cannot help but relate to the company’s mission and, as a result, is willing to participate financially. This is the major reason why the company in question is still able to get away with selling premium products only, resting primarily on people’s absolute love.

References

Martin (2016). Product-driven vs. Customer-driven Businesses. CLEVERISM Publishing. Nasdaq (2016). Retrieved from Nasdaq: http://www.nasdaq.com/markets/ipos/company/yeti- holdings-inc-998236-81248# Rodriguez, A. (2014). How YETI Made a Cooler an Aspirational Brand. Don't Miss. Saporito, B. (2016, February). Inc. Magazine. Retrieved September 2017, from Inc.: https://www.inc.com/magazine/201602/bill-saporito/yeti-coolers-founders-roy-ryan- seiders.html

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Paper submitted 19 June 2017 Paper accepted for publishing 03 September 2017 Paper pubslihed on-line 30 November 2017

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