Rochester Institute of Technology RIT Scholar Works Theses Thesis/Dissertation Collections 2002 The evelopmeD nt of tourism in republic of Croatia by using best management practices Ivo Arkulin Follow this and additional works at: http://scholarworks.rit.edu/theses Recommended Citation Arkulin, Ivo, "The eD velopment of tourism in republic of Croatia by using best management practices" (2002). Thesis. Rochester Institute of Technology. Accessed from This Thesis is brought to you for free and open access by the Thesis/Dissertation Collections at RIT Scholar Works. It has been accepted for inclusion in Theses by an authorized administrator of RIT Scholar Works. For more information, please contact [email protected]. THE DEVELOPMENT OF TOURISM IN REPUBLIC OF CROATIA BY USING BEST MANAGEMENT PRACTICES By Ivo Arkulin Major Advisor: James W. Jacobs, Jr., PhD A THESIS Submitted to Rochester Institute ofTechnology In partial fulfillment ofthe requirements For the degree of HOSPITALITY - TOURISM MASTER OF SCIENCE Department ofGraduate Studies in the School ofFood, Hotel and Travel Management 2002 ROCHESTER INSTITUTE OF TECHNOLOGY Department ofHospitality and Service Management Graduate Studies M.S. Hospitality-Tourism Presentation ofTbesislProject Findings Name: __....::;Iv..:...:o::....Ar::....::..:ku=lin~ Date: 03-11-02 SS#=- _ Title ofResearch: THE DEVELOPMENT OF TOURISM IN REPUBLIC OF CROATIA BY USING BEST MANAGEMENT PRACTICES Specific Recommendations: (use other side ifnecessary) Thesis Committee: (1) Dr. James Jacobs, Jr. (Chairperson) (2) OR (3) Faculty Advisor: Number ofCredits Approved: 4:....- _ l/E.fPo!)v ate Committee Chairperson's Signature Date Committee Signature Note: This form will not be signed by the Department Chairperson until all corrections, as suggested in the specific recommendations (above) are completed. cc. Department Student Record File - Original Student FORM I ROCHESTER INSTITUTE OF TECHNOLOGY Department of Hospitality and Service Management Graduate Studies M.S. Hospitality-Tourism Management Statement Granting or Denying Permission to Reproduce Thesis/Graduate Project The Author ofa thesis or project should complete one ofthe following statements and include this statement as the page following the title page. Title ofThesis/project: Tourism Development in Croatia by Using Best Management practjces I, Ivo Arkulin ,herereby grant, eny) permission to the Wallace Memorial Library ofRI.T., to reproduce the document titled above in whole or part. Any reproduction will not be for commercial use or profit. OR I, , prefer to be contacted each time a request for reproduction is made. I can be reached at the following address: 1)5 (3,1 102- , Dale Signature FORMK ABSTRACT This study has been created to analyze current stage oftourism development in Republic of Croatia, as well as to show prospective ways for improved tourism and economic development in the future. The focus is on both macroeconomic and microeconomic .aspects. The study shows how to use some ofthe best management practices - system dynamics, systems thinking, breakthrough thinking, benchmarking and delivering profitable value - in scenario planning for Croatian tourism and economic development. The transition process brings about numerous challenges to every aspect of life, but especially in economics. Government administrators, economists, tourism planners, corporate managers and university professors can find the best way to deal with these challenges in such increasingly complex environment. Traditional styles and practices in both knowledge delivery and implementation of actions are often limited when the focus is on ambiguous and interrelated problems within complex systems. A new systematic and organized approach should be established for fostering the problem solving, critical thinking and scenario planning skills. The idea is to familiarize those in charge oftourism and economy development in Croatia with a new approach, derived from best management practices. Breakthrough thinking shows that the same or very similar practices can be used in management of an enterprise, a city, region or a whole country. Hands-on experience through implementation ofthe best practices should eventually result in increased creativity and implementation ofthe new ideas. It will also help to u environment. The final result would be a transformation ofthe Croatian economy to a value delivery system and establishing "Croatian best practices", i.e. feasible model for successful tourism and economic development that can be used not only in Croatia but, with modifications, in other countries with a similar background. in ACKNOWLEDGEMENTS I would like to extend my sincere thank to everyone who have supported me in any respect for accomplishing this goal. I would like to thank my family for all their love, faith and unreserved support in everything I did, I do or I will do. Special thanks to Dr. Jacobs for everything he did for me. I found not only intellectual model, but a real friend in Jake. It is impossible to forget Loak-an-ta, my fantastic team. I was really both flattered and fortunate to meet all ofthem. Thanks for being part ofmy life, and I am looking forward to keeping and strengthening our friendship through all the corning years. I would also like to extend acknowledgement to Dr. Domoy and Dr. Myers, from Rochester Institute ofTechnology, as well as to my dear friends Nina and Don from American College ofManagement and Technology in Dubrovnik, Croatia, for all their help and support. Without them, I would probably miss the privilege to join this wonderful school. Thanks to all professors and lecturers at R.I.T. that have been part of the Graduate program. And the last, but definitely not the least, warmest thanks to my wife Stanka for all her love, support and shared dreams. iv TABLE OF CONTENTS Abstract ii Acknowledgements iv Table of Contents v List ofCharts viii List of Tables ix List ofFigures x CHAPTER I - Introduction 1 Tourism in Croatia 1 Background 5 Problem 6 Purpose 6 Methodology 7 Significance 8 Further Development 9 Limitations 10 CHAPTER II - Problem Development 11 Economic and Political Overview 11 Croatia - a country with attractive economic potential 12 Political reforms in 2000 13 Relations with the International community 13 Convergence with European Union 14 Economic program to promote stability and growth 14 GDP reflects a service - based economy 15 Western-oriented high value added export base 16 Croatian growth path in 2000 18 inflation rate 19 Declining current account deficit 20 Trade balance 20 Increasing foreign exchange reserves 21 Gross external debt 21 Banking sector 23 Privatization 23 Croatia's equity market 26 Foreign direct investment 27 Legal issues in economical development 29 Overview summary 30 Literature overview 30 Systems dynamics 31 Systems thinking 32 Breakthrough thinking 33 CHAPTER III- Futures of Croatian Tourism 38 The Macroeconomic Model for Croatian Tourism Development 38 Systems Matrix for Croatian Tourism Development - Macroeconomic Approach 58 vi Key Factors for Croatian Tourism Development - Microeconomic Approach 62 Population 65 Capital Allocation 66 Industry 73 Further Development 76 CHAPTER IV - Conclusions, Recommendations and Continuation ofthe Study 77 Conclusions 77 Recommendations 80 Continuation ofthe Study 81 References 84 Appendix I - Republic of Croatia - General Information 86 Appendix II - Republic of Croatia - Key Economic Indicators 88 vi 1 LIST OF CHARTS CHART 1.1 - Republic ofCroatia- Geographic overview 4 Vlll LIST OF TABLES TABLE 1.1- Environment for developing Croatian tourism 7 TABLE 2.1- Foreign direct investment by country of origin and the sum invested 27 TABLE 2.2 - Structure of Foreign direct investment 28 TABLE 3.1- System matrix for Croatian tourism development 59 TABLE 3.2 - System matrix for Croatian tourism development - Microeconomic approach 63 IX LIST OF FIGURES FIGURE 2.1 -Croatian GDP by sector 16 FIGURE 2.2 - The structure of Croatian exports and imports 17 FIGURE 2.3 - Average growth in Transition countries 1994-1999 18 FIGURE 2.4 - Average annual inflation in emerging Europe 19 FIGURE 2.5 -Croatian trade balance 1995-2000 21 FIGURE 2.6 - Gross external debt as % ofGDP in European Transition countries 22 FIGURE 2.7 - Number ofbanks in Croatia 23 FIGURE 2.8- Share of assets in total bank assets 24 FIGURE 2.9 -Croatia's equity market 1997-2001 26 FIGURE 2. 10 -The Systems Matrix 35 FIGURE 3.0 - The Macroeconomic Model for Croatian Tourism Development 39 FIGURE 3.1- Futures scenario at local level 42 FIGURE 3.2 - Futures scenario at regional level 45 FIGURE 3.3 - Futures scenario at global level 49 FIGURE 3.4 - Futures scenario 50 FIGURE 3.5 - Interventions to lack ofcommitment to purpose 53 FIGURE 3.6 -Interventions to lack ofmotivation 55 FIGURE 3.7 -Interventions to lack ofknowledge 56 FIGURE 3.8 - The Macroeconomic Model for Croatian x Tourism Development (Duplicate) 57 3.9- - FIGURE Population tourism development mutual causal diagram 66 FIGURE 3.10- Capital allocation - tourism development diagram 68 FIGURE 3.11- Tourism development - industry mutual causal diagram 75 xi CHAPTER I INTRODUCTION Tourism in Croatia The tourism industry ofthe Republic of Croatia is more than 150 years old, located on the Adriatic Sea, one ofthe most beautiful coasts along Mediterranean Sea. In 19th the middle of century, at that time part ofAustro-Hungarian Empire, the Croatian coastal city of Opatija became a famous winter resort and spa for noble families from the