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Strategic Management International Journal of Strategic Management and

Decision Support Systems in Strategic Management

www.ef.uns.ac.rs/sm Publisher University of Novi Sad, Faculty of Economics in Subotica Segedinski put 9-11, 24000 Subotica, Serbia Tel: +381 24 628 000 Fax: +381 546 486 http://www.ef.uns.ac.rs For Publisher Nenad Vunjak, University of Novi Sad, Faculty of Economics in Subotica, Serbia Editor-in-Chief Jelica Trninić, University of Novi Sad, Faculty of Economics in Subotica, Serbia National Editorial Board Esad Ahmetagić, University of Novi Sad, Faculty of Economics in Subotica, Serbia Jelena Birovljev, University of Novi Sad, Faculty of Economics in Subotica, Serbia Jovica Đurković, University of Novi Sad, Faculty of Economics in Subotica, Serbia Nebojša Janićijević, University of Belgrade, Faculty of Economics Belgrade, Serbia Tibor Kiš, University of Novi Sad, Faculty of Economics in Subotica, Serbia Božidar Leković, University of Novi Sad, Faculty of Economics in Subotica, Serbia Vesna Milićević, University of Belgrade, Faculty of Organizational Sciences, Serbia Aleksandar Živković, University of Belgrade, Faculty of Economics, Serbia International Editorial Board Ilona Bažantova, Charles University in Prague, Faculty of Law, Czech Republic André Boyer, University of Nice Sophia-Antipolis, France Ivan Brezina, University of Economics in Bratislava, Faculty of Economic Informatics, Bratislava, Slovakia Ferenc Farkas, University of Pécs, Faculty of Business and Economy, Hungary Agnes Hofmeister, Corvinus University of Budapest, Faculty of Business Administration, Hungary Pedro Isaias, Open University Lisbon, Portugal Novak Kondić, University of Banja Luka, Faculty of Economics, Banja Luka, Bosnia and Herzegovina Mensura Kudumović, University of Sarajevo, Faculty of Medicine, Bosnia and Herzegovina Vujica Lazović, University of Montenegro, Faculty of Economics, Podgorica, Montenegro Martin Lipičnik, University of Maribor, Faculty of Logistics Celje-Krško, Slovenia Pawel Lula, Cracow University of Economics, Poland Emilija Novak, West University of Timisoara, Timisoara, Romania Elias Pimenidis, University of East London, England Vladimir Polovinko, Omsk State University, Russia Ludovic Ragni, University of Nice Sophia-Antipolis, France Kosta Sotiroski, University „ST Kliment Ohridski“ Bitol, Faculty of Economics Prilep, Macedonia Ioan Talpos, West University of Timisoara, Faculty of Economics, Romania Assistant Editors Marton Sakal, University of Novi Sad, Faculty of Economics in Subotica, Serbia Vuk Vuković, University of Novi Sad, Faculty of Economics in Subotica, Serbia Lazar Raković, University of Novi Sad, Faculty of Economics in Subotica, Serbia English translation Željko Buljovčić Zora Trninić Prepress

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Decision Support Systems in Strategic Management ISSN 1821-3448, UDC 005.21 Strategic Management is a quarterly journal addressing issues concerned with all aspects of strategic man-agement. It is devoted to the improvement and further development of the theory and practice of strategic management and it is designed to appeal to both practicing managers and academics. Specially, Journal pub-lishes original refereed material in decision support systems in strategic management.

Thematic Fields Mission and Philosophy of the Organization

Culture and Climate of the Organization

Effectiveness and Efficiency of the Organization

Structure and Form of the Organization

Strategic Analysis

Aims and Strategies

Process of Strategic Management

Characteristics of Strategic Management in the New Economy

Contemporary Ontological, Epistemological and Axiological Suppositions on the Organization and its Environment

Analysis of the Organization and its Interaction with the Environment

Structure and Dynamics of the Organizational Environment

Uncertainty and Indistinctiveness of the Organizational Environment

Synchronic and Diachronic Analysis of the Organizational Environment

Analysis Techniques of the Organization

Business Processes, Learning and Development within the Context of Strategic Management

Evaluation and Measuring of the Potential and Realization of the Organization within the Context of Strategic Management

Strategic Control in Contemporary Management

Information Technologies in Strategic Management

Business Intelligence and Strategic Management

Decision Support Systems and Artificial Intelligence in Strategic Management

All scientific articles submitted for publication in Journal are double-blind reviewed by at least two academics appointed by the Editor's Board: one from the Editorial Board and one independent scientist of the language of origin - English. Reviewers stay anonymous. Authors will timely receive written notification of acceptance, re-marks, comments and evaluation of their articles.


Decision Support Systems in Strategic Management www.ef.uns.ac.rs/sm ISSN 1821-3448 UDC 005.21 2014, Vol. 19, No. 2

Contents Oleg Roy Modern Trends in the Development of Russian Regions Under the Conditions of International Integration 03-06 Petr Fiala Strategic Project Portfolio Management 07-13 Zlatica Ivaničová, Eva RublíkováManagement of Regional Consumption 14-18 Jelica Trninić, Jovica Đurković, Lazar Raković, Nenad MirkovOpen Source ERP as Supply Chain Management Support 19-26 Jelena Birovljev, Biljana Ćetković The Role of Organic Production and Permaculture in Ensuring Economic Efficiency of Agroeconomy of Serbia 27-32 Žarko Popović, Snežana Radukić, Milica RadovićOptimization of Economic and Environmental Goals by Multicriteria Analysis Models 33-40 Aleksandar Grubor The Role of the Marketing Aspects of Market Integration in Achieving Competitiveness 41-46 Beba Rakic, Mira RakicWho Has the Power in Digital Marketing: Customer or Content? 47-55

STRATEGIC MANAGEMENT, Vol. 19 (2014), No. 2, pp. 003-006 UDC 332.146.2(470):339.56

Received: February 15, 2014

Accepted: May 20, 2014

Modern Trends in the Development of Russian Regions Under the Conditions of International Integration

Oleg Roy Omsk State University F.M.Dostojevsky Omsk, Russian Federation

Abstract The article analyzes the development trends of Russian regions taking into account the intensification of for-eign trade activities at the regional level, determines the foreign investment behaviour in the Russian regions,and finally, defines problems caused by the weakening of interregional relations and the low fiscal capacity ofthe regions. Based on a comparison of statistical key figures of the federal districts, this article highlights theexisting regional imbalances caused by the delay of most federal districts in relation to the Central FederalDistrict, and also evaluates the implementation of foreign investments in certain selected Russian regions. Keywords Russian Federation, region, foreign trade activity, federal district, foreign investment, interregional relations,economic integration.

Economic integration Economic integration is an objective process of constant merging of economic mechanisms of two or more states, which are usually located in the same region, have approximately the same level of development, and have compatible social, eco-nomic and political systems and priorities, and which espouse an integration policy. The goal of integration is to optimize the production and tech-nological structure of the national system of pro-duction and distribution of goods based on inter-state cooperation, mutually beneficial exchange of goods and technologies between enterprises and realization of joint long-term projects. Due to the integration tendencies in the economy, the partici-pating countries enhance competitiveness of their goods, gain the right to have access to perspective technologies, boost their production, develop new markets, seem more attractive for foreign inves-tors, etc.

Russia is quite attractive for international cor-porations, which eagerly invest their assets in the Russian economy. The current foreign investment in Russia amounts to $264 billion, 38.7% of

which are direct investments and 7.5% are portfo-lio investments. Other investments include 53.8%. Direct investments into local companies are the most important for the analysis of the level of re-gional integration. The purchase of controlling interest of a local company, which gives an inves-tor the right to manage the company, falls under the category of direct investments. Since direct investments are made for a long period of time, investors are interested in the development of a company in which they place their assets. Direct investments can be made in a special fund which accumulates funds for purchasing a company’s block of stock. Portfolio investment is an invest-ment in securities which allow investors to gain revenues from the change of stock market rates of companies’ securities during stock trading. Unlike direct investments, portfolio investments do not give investors the right to manage a company since they are made for a short term, and their rate depends on a current situation on the market.

The percent of a company’s shares giving the right to control over a company is determined differently. According to the International Mone-

4 Oleg Roy Modern Trends in the Development of Russian Regions Under the Conditions of International Integration

STRATEGIC MANAGEMENT, Vol. 19 (2014), No. 2, pp. 003-006

tary Fund documents, the chart capital has to in-clude no less that 25% of direct investments; in Canada it has to contain no less than 50%, in Aus-tralia and New Zealand the direct investment is no less than 50%; in EU countries the direct invest-ment comprises 20-25% of the charter capital and 10% in the USA. According to Federal Law № 160-FZ “On Foreign Investments in the Russian Federation,” the following investments qualify as foreign direct investments: an acquisition by a foreign investor of no less than 10% of shares in the charter capital of a commercial organization established on the territory of the RF; investments into basic capital funds of a foreign legal entity’ branch; leasing of equipment whose customs cost is no less than one million roubles; and reinvest-ment of profits gained on the territory of the Rus-sian Federation (Экономическая сущность иностранных инвестиций, 2012; Иностранные инвестиции в РФ, 2012).

Inter-regional and international economic trade in GRP of the RF The share of foreign direct investment In Russia has decreased in the last 9 years. In 2003, direct investments were 40.4%, whereas in 2011 direct investments dropped to 9.7%. Such decrease can be explained by the fact the increase in other in-vestments, especially short term loans (up to 80 days) , the percentage of which to the total share increased from 18.6% in 2003 to 40% in 2011. (Россия в цифрах, 2012, p. 482).

Russia received most investments from Swit-zerland (91,827million dollars (48.2%)) in 2011 and transferred to Belorussia 9,231,893 million dollars (71.9%). Among the CIS countries, Belo-russia allocates the largest investments in the Rus-sian economy (43.3%), while Kazakhstan invests 33.7%. Oil production and refinery industry still remains the attractive sector for foreign investors in Russia.

Of course, the shortage of international in-vestments can be compensated by a more active participation of regions in attracting funds of other regions. However, as Russian authors note (Гусев, 2011), Russian regions are involved into foreign trade relations with foreign countries more than in trade relations within the country. Among other federal districts, Central Federal District is engaged in trade with Russian regions more than any other federal districts. It accounts for 41.5% of all exported commodities and 52.3% of all im-ported commodities, whereas the Far East Federal District is not integrated into the system of inter-

regional trade: in 2009, the share of all goods im-ported from other districts was only 1.73% (cf. 24.6% in Central Federal District). The share of imported goods in most federal districts does not exceed 7% within GRP, which testifies about pro-tectionist policy of regional authorities and lim-ited access for businesses from other regions. A half of products manufactured in Russian regions do not cross regional borders and are consumed within regions.

This situation changes when it comes to for-eign economic relations. Table 1 provides a com-parative analysis of the share of inter-regional and international economic trade in GDP of the RF districts which is carried out on the basis of data provided by Гусев (2011).

Table 1 A comparative analysis of the share of inter-

regional and international economic trade in GRP of the RF districts

Federal District

Share of goods ex-ported from FD regions to re-gions of other FD in GDP of the region, %

Share of goods im-ported from FD regions to other regions of FD in GDP of the District, %

Share of export from a FD in GDP of the Dis-trict, %

Share of import from foreign coun-tries in GDP of the FD, %

Domestic trade Foreign trade

Central District

3.37 5.96 35.22 26.84

Northwest-ern District

12.29 5.22 29.68 27. 29

Southern District

6.8 6.17 13.32 11,3

North-Caucasian District

6.31 6.80 4.41 3.37

Privolzhsk District

7.50 3.19 21.02 5.57

Ural District 0.15 3.54 33.83 5.4

Siberian District

2.66 3.45 23.93 5.46

The Far East District

0.45 2.77 21.97 9.11

Source: Гусев, 2011

Table 1 shows that federal districts are more

engaged into international trade, except North-Caucasian Federal District, rather than in inter-regional. This can be explained by several rea-sons.

Oleg Roy Modern Trends in the Development of Russian Regions Under the Conditions of International Integration 5


Firstly, low competitiveness of goods manu-factured by Russian enterprises and their high production costs make enterprises replace prod-ucts from foreign sources. Secondly, the current system of budget federalism in Russia has strengthened competitive goals of regions and got regional authorities to see rivals in the neighbour-ing federal subjects while competing for budget funds and investments. Thirdly, priority of inter-national integration over inter-regional can be explained by ineffective federal policy that has not created adequate conditions for consolidation of regions in order to resolve urgent issues. For-eign economic activity should be a natural reac-tion of a region to the limitations of inter-regional relations that stimulated regions to enter new markets which are not typical for them. The pos-sibilities of inter-regional cooperation in Russia are still not exhausted.

In general, economic well-being of Russia de-pends on twenty regions which provide about three quarters of the total revenue and ensure even a larger share on the revenue side of the federal budget. These regions take a key place in foreign economic cooperation of Russia. International economic activities, which are accompanied with receiving foreign credits and investments, have a increasingly considerable influence on social and economic situation in regions and trigger their division into successful and depressed regions. In this context, the shortcomings of the Russian law regulating credit and investment sphere deter-mined detachment of Central Federal District from other regions. Certainly such tendency threatens integrity of the country and might lead to the loss of tolerance to changes in the world economy.

Foreign trade activity of Russian regions Along with capital investments, export/import operations are an important criterion of regional integration. With the help of these operations re-gions develop a system of economic cooperation with foreign companies. Export indicators can be used to determine the share of foreign investment into regions, while import indicators show the dependence of a local market on foreign supplies. The mechanism of international economic activi-ties in the RF regions include various forms of these activities: international trade, cooperation in production, establishment of joint ventures, attrac-tion of international investments, cooperation be-tween frontier regions, and the use of benefits of

free enterprise zones. One of the key indicators of district’s integration into the world economic space is the share of a district in foreign export and import. Table 2 indicates again leadership of the Central District and the Northwestern District in the structure of export/import operations of the federal districts in Russia taking into account their share in GDP of the district.

Table 2 The Structure of export and import of goods

across federal districts, 2009 (foreign trade)

Federal District

Share of export from FD to foreign countries

Share of import from foreign con-trives to FD

In the total volume export from FD, %

In GRP of the District, %

In the total volume of import to FD, %

In GRP of the District, %

Central Dis-trict

44.69 35.22 60.47 26.84

Northwestern District

11.21 29.68 18.30 27.29

Southern District

2.94 13.32 4.42 11.30

North –Caucasian District

0.39 4.41 0.53 3.37

Privolzhsk District

11.47 21.02 5.39 5.57

Ural District 16.49 33.83 4.67 5.40

Siberian District

9.0 23.93 3.64 5.46

The Far East District

4.22 21.97 3.10 9.11

Source: Гусев, 2011

It is noteworthy that the share of export in

GRP of the District is larger than the share of im-port in GRP of the District. Only the Ural Federal District, with its oil producing areas, which is the main Russian exporter, has a higher indicator.

Dynamics of the development of enterprises with foreign capital has a positive trend in Russia. Despite crisis-related phenomena in the economy, the number of enterprises with foreign continues to grow. In 2000, their number accounted for 12,563, whereas in 2008 the number was 16,396, and in 2010 it was 19,650. A half of these enter-prises were concentrated in Central federal Dis-trict (9, 577). The fact that the largest share of enterprises’ capital is allocated in Cyprus (4,625) testifies about the speculative character of foreign participation in the development of Russian busi-ness. More than one quarter of the total number of enterprises with foreign capital are located in Cy-

6 Oleg Roy Modern Trends in the Development of Russian Regions Under the Conditions of International Integration


prus, which makes one wonder about motives of such integration.

A significant increase in the number of enter-prises registered in Cyprus has occurred during the last three years, from 2009 to 2010. China is a leader of international cooperation, along with offshore zones. Most enterprises with foreign capital were established in the Siberian Federal District (284 out of 1,534) and the Far East Fed-eral District (382 out of 979) in cooperation with China. Despite the fact that the share of China in the foreign turnover of Siberian Federal District was 19.7% in 2011 compared to 26.3% in 2008, China remains the most important partner of Sibe-rian and the Far East Districts. According to the data provide by the Siberian Customs Department, the share of China in the structure of international economic activities of Siberian regions was 7.48 billion USD.

Among European countries, the leader in the cooperation with Russian region is Germany, which has more than 6% of the total number of enterprises (1,478 out of 19,650). At the same time, the largest part of enterprises with German capital are located in two subjects: Moscow (530) and St Petersburg, along with the region, (163). Nevertheless, other regions (Kaliningrad (96) and Krasnodar (54)) have begun to set up enterprises with German capital lately.

The policy of the federal centre concerning the development of foreign economic activities is reflected in the fact that the passports of ear-marked programs on the development of Kalinin-grad region and the Far East allow a large volume of foreign capital. Thus, Kaliningrad region is supposed to receive 367,343.51 million roubles only from non-budgetary sources. However, the trade deficit of the region testifies about serious concerns in regard to the pre-set goal.

The situation is significantly better in Primor-sky Krai. During the last two years, the number of enterprises with foreign capital has increased there from 243 to 316. Sakhalin has also seen an impressive increase in the number of enterprises (from 93 to 159). Kamchatka Krai, Khabarovsk Krai, and Amursk region also show positive dy-namics. The total number of enterprises with for-

eign capital registered in the Far East Federal Dis-trict is 681. Sakhalin region has the largest share of foreign investments (4,582,121 thousand USD out of 6,132,350 thousand USD in the Far East Federal District).

The main international partners of the Far East Federal District are the USA and China, which allocated their investments into 240 and 98 enter-prises respectively. It is noteworthy that there are not many Cyprus-based offshore companies (27) in the Far East Federal District. For instance, there are 40 enterprises with foreign capital out of 600 registered in Cyprus in Southern Federal District (Рой, 2012)

The role of regions in the current global econ-omy is growing significantly. This process reveals positive and negative outcomes of countries’ join-ing international unions. Regions should be ready to carry out an active and wise policy when pro-moting domestic products on international mar-kets and attract foreign investors. Russia’s joining the WTO opens new perspectives for the region connected primarily with the attraction of addi-tional funds to the development of the region’s potential. However, Russia’s membership in the WTO might cause risks to the regional economy. In these economic conditions the regions have to develop their own policy oriented towards the realization of their foreign economic potential. SM

References Экономическая сущность иностранных инвестиций

(2012) Retrieved Januay 15, 2014 from: http://www.e-college.ru/xbooks/xbook178/book/index/index.html?go=part-003*page.htm

Иностранные инвестиции в РФ. (2012): Retrieved Januay 15, 2014 from E-college: http http://www.invest-profit.ru/banki/analitika/835-inostrannye-investicii-v-rossijskoj-federacii.html

Россия в цифрах (Russia in Figures) (2012), Statistical Handbook.

Гусев, А. (2011) Ослабленная экономическая интеграция регионов России – угроза территориальной целостности страны. Общество и экономика, 10, 50-66.

Рой, О.М. (2012) Проблемы интеграции российских регионов в экономическое пространство других государств. Управленческие науки, 1(2), 108-112

Correspondence

Oleg Roy

Omsk State University F.M.Dostojevsky Prospect Mira 55a, 644077, Omsk, Russian Federation

E-mail: [email protected]

STRATEGIC MANAGEMENT, Vol. 19 (2014), No. 2, pp. 007-013 UDC 005.8

Received: March 16, 2014


Strategic Project Portfolio Management

Petr Fiala University of Economics, Prague, Czech Republic

Abstract Project management is the discipline of planning, organizing, securing and managing resources to bring aboutthe successful completion of specific project objectives. Project opportunities come in time and it is necessary to decide which will be accepted for creating a dynamic portfolio of projects and which will be rejected. Theuse of project portfolio management is increasingly becoming a tool for promoting the strategy of the organiza-tion, which is a very important role. Using of standard methods or trying to design and apply sophisticatedmethods based on quantitative analysis is possible for portfolio management. Selection of project portfolio is adynamic multi-criteria decision-making problem under risk. The paper presents an approach for dynamic pro-ject portfolio management based on the Analytic Network Process (ANP) model. The ANP model consists offour basic clusters (projects, resources, criteria, and time) with their elements and influences. An important factor of the proposed ANP model is time. A hybrid procedure for dynamics of the project portfolio manage-ment is proposed. Project management is associated with a significant level of risk in project implementationbecause each project is unique. The paper proposes the use of decision trees and multi-criteria decision mak-ing methods for modelling and solving this problem. Keywords Strategy, projects, project portfolio, resources, criteria, dynamics, ANP, decision tree.

Introduction Project management is the discipline of planning, organizing, securing and managing resources to bring about the successful completion of specific project objectives. In an accelerating economic world, projects become tools for promoting the objectives of the organization. There is a very extensive literature on the management of indi-vidual projects and project portfolios. We start from a publication (Larson & Gray, 2011) that describes project management as a managerial process very clearly. In the accelerating world rhythm, projects are the right option for solving problems of lot of organizations. Nothing is per-manent, everything is temporary, and that makes pressure on companies to finish new products or services faster, cheaper and definitely not to fail. Risk is a very important factor in project man-agement. Most project organizations exist in a multi-project environment. This environment cre-ates the problems of project interdependency and the need to share resources. Projects are the way to implement the organization's strategy. Strategic alignment of projects is of major importance to

effective use of organization resources. Selection criteria need to ensure each project is prioritized and contributes to strategic goals.

Ensuring alignment requires a selection proc-ess that is systematic, open, consistent, and bal-anced. All of the projects selected become part of a project portfolio that balances the total risk for the organization. Management of the project port-folio ensures that only the most valuable projects are approved and managed.

Projects are considered as a tool for achieving the strategic goals of organizations. Continuous innovation, renewal and organizational learning are considered vital for survival. Intense global competition is forcing many organizations to look for new methods of management. The key to suc-cess in project portfolio management is to select the right projects at the right time (Levine, 2005). The project selection process is considered a ma-jor component of project portfolio management. This should be accompanied by periodically re-peated inspections of project portfolio, which would identify projects that should be terminated. Effective portfolio management helps to achieve

8 Petr Fiala Strategic Project Portfolio Management


outperformance, making strategy real through organizational change. Strategic project portfolio management enables present a framework for or-ganization to complete significant strategic pro-jects. Portfolio management is a process. This process must improve over time. Building feed-back into every stage of the process is critical for the improvement.

There are basically two approaches to select-ing a portfolio of projects; one is based on stan-dard methods used in practice, and the other ap-proach is based on searching and applying new sophisticated methods based on quantitative analysis. The paper focuses on the of project port-folio selection problem solved by applying so-phisticated models. The aim is to develop a gen-eral model, which would be completed for the specific needs of problems. This is not about managing individual projects, but their networks where relationships exist among projects. This paper aims to verify the ability to model and solve the problem of dynamic project portfolio using the Analytic Network Process (ANP) model. Portfolio management is a process. This process must im-prove over time. Building feedback into every stage of the process is critical for improvement. The organization must decide under risk whether to assign all available resources to present propos-als or to reserve a portion of the funds unused for some time and wait for better alternatives that may occur later. We propose to complete our ANP model by a decision tree with multiple crite-ria and interactive multi-criteria analysis for solv-ing this problem.

1. Project portfolio selection problem The network economy is a term for today’s global relationship among economic subjects character-ized by massive connectivity. The central act of the new era is to connect everything to everything in deep web networks at many levels of mutually interdependent relations, where resources and activities are shared, markets are enlarged and costs and risk are reduced. Network systems con-tain both positive and negative feedbacks. A vari-ety of feedback processes create complex system behaviour (Fiala, 2006).

The portfolio management domain encom-passes project management oversight at the or-ganization level through the project level. Full insight of all components of the organization is crucial for aligning internal business resources with the requirements of the changing environ-ment. Project portfolios are frequently managed

by a project office that serves as a bridge between senior management and project managers and project teams. Project opportunities come in time and it is necessary to decide which will be ac-cepted for creating a dynamic portfolio of projects and which will be rejected (see Picture 1).

Figure 1 Dynamic flow of projects

Source: Author

Project portfolio is the set of all projects that

are implemented in the organization at that time. The basic objectives of the project portfolio man-agement include:

optimizing the results of the entire project portfolio and not individual projects,

selecting projects to start, interrupting or discontinuing projects, defining priorities for projects, coordinating internal and external sources, organization learning from each other pro-

ject.

It is generally expected that the portfolio should be designed in such a way as to maximize the possibility of achieving the strategic goals of the company. This is consistent with the notion that portfolio selection problem is a multi-criteria decision making. The main goal of each project is to increase the value of the organization, so most managers prefer financial criteria for project evaluation. The most commonly used indicators include net present value, internal rate of return, payback period, and the rate of return.

In addition to these financial indicators, how-ever, in selecting a portfolio of projects should be taken into account other characteristics, which include for example:

the probability of completing the project on time, within budget and within the pro-posed quality;

consistency between strategic and tactical plans;

the balance between investment projects and maintenance projects;

efficient use of resources; relations between projects; the scope of each project;

Petr Fiala Strategic Project Portfolio Management 9


time-dependent consumption of resources on projects;

allocation of expenditure and resources for research and development;

allocation of marketing spending and re-sources.

Numerous professionals have tried to find so-phisticated way to improve techniques for project management in different ways. The paper presents an approach for dynamic project portfolio man-agement based on the ANP model.

2. Analytic network process The Analytic Hierarchy Process (AHP) is the method for setting priorities. A priority scale based on reference is the AHP way to standardize non-unique scales in order to combine multiple performance measures. The Analytic Network Process (ANP) is the method (Saaty, 1996) that makes it possible to deal systematically with all kinds of dependence and feedback in the perform-ance system. The well-known AHP theory is a special case of the Analytic Network Process.

The ANP approach seems to be a very appro-priate instrument for project portfolio manage-ment. Another issue is the appropriate selection of clusters, which would be the basis of the basic model and their fulfilment by system elements. Another specific problem is the creation of sub-networks in the ANP model characterizing the specific important circumstances of the model. The current economic environment is character-ized by significant changes. An important prob-lem of the model will be to capture the dynamics that would represent appropriate changes.

The ANP method is suitable for the determina-tion of priorities in network systems where there are different types of dependencies between the elements of the system. Time dependent priorities play an increasingly important role in a rapidly changing environment of network systems. Long-term priorities can be based on time dependent comparisons of system elements. Short-term pre-dictions can be based on using compositional data exponential smoothing. A hybrid procedure that combines the advantages of both approaches is proposed.

2.1. Elements of the ANP method The structure of the ANP model for dynamic pro-ject portfolio (DPP) is described by clusters of elements connected by their dependence on one another. A cluster groups elements (projects, re-

sources, criteria, and time) that share a set of at-tributes. At least one element in each of these clusters is connected to an element in another cluster. These connections indicate the flow of influence between the elements (see Figure 2).

Figure 2 Flows of influence between the elements Source: Author

The ANP model consists of four basic clusters

with their elements and influences: Projects This cluster consists of potential alternatives of projects which will be selected a dynamic portfo-lio. There are priorities among projects for inclu-sion in the portfolio. The cluster has connections to all other clusters. Resources Resources are necessary for the implementation of projects. Main resources are human resources be-tween which are relations important for creating project teams. The cluster has connections to all other clusters. Criteria Projects are evaluated according to criteria which include benefits, opportunities, costs, and risks (BOCR). The cluster has connections to all other clusters. Time Time is measured in discrete units. Elements of other clusters vary in time and theirs values de-pend on the values in previous time periods. Sub-networks The basic ANP model is completed by specific sub-networks. The sub-networks are used to model important features of the DPP problem. The most important features in our ANP-based framework for DPP management are captured in sub-networks:



dynamic flow of projects, time dependent resources.

Dynamic flow of projects Project opportunities come in time and it is neces-sary to decide which will be accepted for creating a dynamic portfolio of projects and which will be rejected. The sub-network connects clusters: time and projects.

Time dependent resources A specific sub-network is devoted to model time dependent amounts of resources. The time de-pendent amount of resources is given by. The sub-network connects clusters: time, resources and projects.

2.2. Dynamics of the ANP method An important characteristic of project portfolio management is dynamics. Time dependent priori-ties in the ANP model can be expressed by fore-casting using pairwise comparison functions (Saaty, 2007) or by predictions based on the use of compositional data exponential smoothing (Ra-harjo & Brombacher, 2009).

Time-dependent comparisons Dynamic extensions of ANP method can work with time-dependent priorities in a networked system. There are two approaches for time-dependent pairwise comparisons:

structural, by including scenarios, and functional by explicitly involving time in

the judgment process.

There are analytic or numerical solutions for the functional dynamics. The basic idea with the numerical approach is to obtain the time depend-ent principal eigenvector by simulation (Saaty, 2007).

Judgment matrix in dynamic form

( ) = ( ) ( ) … ( )( ) ( ) … ( )⋮ ⋮ ⋮( ) ( ) … ( ) .

Forecasting using pairwise comparison func-

tions produces a problem with keeping the consis-tency of paired comparisons. A procedure based on exponential smoothing was designed, which is suitable for short-term predictions (Raharjo & Brombacher, 2009).

Compositional Data Analysis The compositional data are everywhere where we need to work with data containing only relative information, which is useful for working with weights.

The following operations are defined on the

simplex space = = ( , , … , ), > 0, =1,2,…, , =1 =1. Closure operator C(x): For any vector = ( , , … , ) ∈ ( ) = ∑ , ∑ , … , ∑ .

Perturbation: For any two vectors from sim-plex space X, Y ∈ ⊕ = ( , , … , ).

Power transformation: For any vector from simplex space X ∈ and ∈ ⊗ = ( , , … , )

Difference: ⊖ = ⊕ (− ⊗ ) Exponential smoothing with compositional

data can be used for predicting weights = ( , , … , ), > 0,= 1,2, … , , = 1, in a short time.

Simple exponential smoothing Vector of observations at time t

= ( , , … , ), > 0, =1,2, … , , ∑ = 1, elements of simplex space. Vector of predictions at time t = ( , , … , ), > 0, =1,2, … , , ∑ = 1, elements of simplex space. The formula for simple exponential smoothing

of compositional data: = ⊗ ⊕ (1 − ) ⊗ .

Double exponential smoothing We introduce for trend modelling a vector of trend values , a vector of slopes , a smoothing constant 0 ≤ α ≤ 1, a trend constant 0 ≤ β ≤ 1.



Formulas for double exponential smoothing of compositional data:

= ⊗ ⊕ (1 − ) ⊗ ( ⊕ ), = ⊗ ( ⊖ ) ⊕ (1 − ) ⊗ , = ⊕ .

Hybrid procedure For the prediction of time-dependent priorities ANP method we propose a hybrid procedure that combines the benefits of long-term forecasting of pairwise comparison functions and short-term weight predictions using exponential smoothing compositional data. This procedure also mutually enriches both procedures obtaining more accurate data. Both procedures were presented in the pre-vious sections and here we limit ourselves to a brief summary of the hybrid procedure steps.

Step 1: Formulation of pairwise comparison

functions. Step 2: Testing and improving consistency of

pairwise comparisons. Step 3: Collection of historical data by ANP

priorities over time. Step 4: Use of compositional exponential

smoothing. Step 5: Selection of the best coefficient α, β

with lowest value of error. Step 6: Forecasting priorities for next time pe-

riods. Step 7: Re-formulation of pairwise compari-

son functions based on short-run model. Go to Step 2.

3. Decisions under risk In each period, the portfolio of projects is re-viewed in line with the strategic objectives of the organization. Management may decide to initiate new projects, but also to end some others that are currently being implemented. Even if the organi-zation has available funds, it is sometimes better to decide not to initiate a new project and wait for a better one. However, while the set of projects that are currently ready for implementation is clearly defined, it is not so easy to predict what new projects will appear in the future. The organi-zation must decide under risk whether to assign all available resources to present proposals or to reserve a portion of the funds unused for some time and wait for better alternatives that may oc-cur later. We propose to use a decision tree with multiple criteria and interactive multi-criteria analysis for solving this problem.

3.1. Decision trees Sequences of partial decisions which follow one another frequently occur in assessing potential projects. They are multi-stage decision processes. The task of the decision maker is to select one of the possible sequences that leads to the best final goal solution. Decision-making takes place in pe-riods t = 1, 2, ... , T. The decision trees are used to solve these problems successfully.

Solution of multi-stage decision problems pro-ceed in two phases. The first phase is the con-struction of a decision tree and the second phase is its evaluation. The graph tree structure is used by the construction of decision trees that appropri-ately models the branching options. The decision-maker creates and evaluates its parts in order to find the optimal sequence of decisions. Two types of nodes are considered, decision and chance nodes. The decision nodes are represented by squares, and chance nodes are represented by cir-cles. The edges of the tree represent branching of decision and chance possibilities. We start with the decision node from which they emanate lines that represent the possible decisions ai. The ends of these edges are chance nodes on which they place edges representing sj possible situations that may occur with conditional probabilities pj. These edges can be followed by another decision nodes with possible decisions, as well as chance nodes with possible situations, etc. Large decision trees may arise by combining these basic elements. End edges, which are not followed by further decision and chance nodes, represent the possible end se-quences of partial decisions that are evaluated.

Evaluation of the decision trees proceeds in the opposite direction from the end edges back to the starting node of the decision. The decision-maker selects the decision that cannot affect the occurrence of situations and must take into ac-count all situations with their conditional prob-abilities of occurrence. The decision that delivers a better evaluation is always chosen from possible decisions. The principle of maximizing the ex-pected value is used in the selection. The optimal sequence of decisions is obtained in this manner.

3.2. Multi-criteria analysis Multi-criteria decision trees (Haimes & Tulsiani, 1990) are used to select the most suitable strategy for a dynamic project portfolio management use. We use standard methods of multi-criteria deci-sion-making for their analysis. We will seek a final compromise strategy for dynamic project



portfolio selection. This strategy should be called effective. Effective multi-criteria strategy is one to which no other alternative strategy exists that would be better at least under one criterion, and not worse under other criteria.

Multi-criteria analysis is at two levels:

1. identification of all effective strategies for dynamic portfolio selection and

2. interactive procedure for determining the final compromise strategy for dynamic portfolio selection.

The following simple procedure can be applied for the identification of effective strategies:

1. Starting from the last period t = T, identify sub-effective strategy for all decision nodes of the period T.

2. Go to the previous period t = t - 1. 3. Identify strategies that meet the conditions

of effectiveness for each decision node of the period t.

4. If t > 1, go to step 2, otherwise the proce-dure stops.

The number of effective strategies can be large. It is possible to use a simple interactive process between the decision maker and solver for the selection of the final compromise strategy from the set of all effective strategies. In each it-eration q, a set of strategies S(q) is analyzed and the ideal alternative H(q) (vector of best values according to each criterion) and the anti-ideal al-ternative D(q) (vector of worst values according to each criterion) are determined. The decision maker compares between such values may vary criteria values. The decision maker is asked about the aspiration levels of criteria A(q), which he would accept as a compromise strategy. If the decision-maker is satisfied with the proposed strategy, the process stops.

Interactive process to determine the final com-promise strategy has the following steps:

1. Iteration q = 1, the set of all analyzed

strategies S(1) is equal to the set of all ef-fective strategies.

2. Determine the ideal alternative H(q) and the anti-ideal alternative D(q).

3. The decision maker is asked to accept anti-ideal values. If yes, go to Step 8.

4. The decision maker is asked to propose the aspiration levels A(q). If not, go to step 6.

5. The decision maker enters aspiration levels A(q) and determines the corresponding set

of acceptable strategies S(q+1). If S(q+1) = ∅, go to step 4, otherwise to step 7. 6. The decision maker is asked which anti-

ideal value is unacceptable for him. A new set of strategies is defined S (q+1) which exceed the unacceptable anti-ideal value.

7. Set q = q + 1, go to step 2. 8. The decision maker is asked which crite-

rion should reach the ideal value. The strat-egy that maximizes this criterion is the re-sulting compromise one.

Conclusions The paper presents a proposed methodology for dynamic project portfolio management. The basic ANP model with clusters (projects, resources, criteria and time) was created. The proposed ANP model captures the relationships between the clus-ters and their elements. An important factor of the ANP model is time. The paper proposes a hybrid procedure for time-dependent priority setting. The methodology is verified on the projects of an en-gineering company. The experimental results will affect the specification, completing and extending the model.

Decision making in the selection of project portfolio decisions is at risk. For most companies it is a continuous process of portfolio selection. various criteria are usually taken into account when selecting a portfolio of projects. As a result, this problem can be formulated as a dynamic multi-criteria decision making under risk. The procedure is an interactive method based on multi-criteria decision trees. The procedure is in two phases. effective strategies are selected in the first stage. In the second stage, preferred strategy is selected using interactive multi-criteria method. The procedure is flexible and can be modified and generalized. The risk attitude of the decision maker can be modified e.g. by using stochastic dominance rule. To select the preferred strategy is to use the additional multi-criteria method.

Acknowledgement The research project was supported by the

grant No. 13-07350S of the Grant Agency of the Czech Republic and by Grant No. IGA F4/19/2013, Faculty of Informatics and Statistics, University of Economics, Prague. SM



References Fiala, P. (2006). An ANP/DNP analysis of economic

elements in today’s world network economy. Journal of Systems Science and Systems Engineering, 15 (2), 131-140.

Haimes, Y., Li, D., Tulsiani, V. (1990). Multiobjective decision tree method. Risk Analysis, 10 (1), 111-129.

Larson E. W., Gray C. F. (2011). Project Management: The Managerial Process. 2nd edition, New York: McGraw-Hill/Irwin.

Levine, H. A. (2005). Project Portfolio Management, San Francisco: Jossey-Bas.

Raharjo, H.; Xie, M.; Brombacher, A. C. (2009). On modelling dynamic priorities in the analytic hierarchy process using compositional data analysis. European Journal of Operational Research, 194 (3), 834-846.

Saaty, T. L. (1996). Decision Making with Dependence and Feedback: The Analytic Network Process. Pittsburgh: RWS Publications.

Saaty, T. L. (2007). Time dependent decision making; dynamic priorities in the AHP/ANP: Generalizing from points to functions and from real to complex variables. Mathematical and Computer Modelling, 46(7-8), 860-891.

Correspondence

Petr Fiala

University of Economics, Prague 3, Prague, Czech Republic


STRATEGIC MANAGEMENT, Vol. 19 (2014), No. 2, pp. 014-018 UDC 336.226.11(437.6) 330.567.2(437.6)

Received: January 13, 2014

Accepted: April 18, 2014

Management of Regional Consumption

Zlatica Ivaničová University of Economics Bratislava, Faculty of Economic Informatics, Slovakia

Eva Rublíková University of Economics Bratislava, Faculty of Economic Informatics, Slovakia

Abstract Regions in the Slovak Republic are economically imbalanced, mainly in terms of employment and unemploy-ment rates, in local budgets, in disposable incomes or consumption. The aim of this paper is to demonstrate apossible way to decrease disparity in consumption between regions using different individual income tax rates instead of the uniform, true flat tax rate of 19 percent only. To solve this problem, we have used the idea ofvan Hagen model (1998) to create an optimal tax rate for each region, by optimizing the variance of consump-tion. Having compared our results, we found out that varying tax rates for individual regions could be one ofthe internal sources for solving economic activity in these regions. Such an approach would provide possibilityto decrease the existing regional disparities and to achieve balanced living standards in the different regions ofSlovakia. Keywords Individual income tax rate, consumption equalisation, fiscal policy, internal risk-sharing.

Introduction Development of world economy has been unsta-ble during the past years. It was caused partly by the depression on the one hand and by imbalanced development of regions or individual states of the world on the other. The reasons of high deficits of state budgets and permanent debts of individual states come from disharmony of their living stan-dards with the efficiency of their economies. The gap between rich and poor countries, between regions and standards of living of their inhabitants is widening constantly.

One of the basic tools used to enhance the growth of the population’s living standard of is to increase the manufacturing potential. The manu-facturing potential correlates with the growth of consumption and the growth of disposable in-comes. Moreover, disposable incomes are affected by the tax system in each country.

Many countries have targeted their domestic economic policy to solve the problem of imbal-anced development of their regions by means of direct state subsidies and by the established prac-tice of differences in levels of taxation of the population in the regions. This is mentioned in

articles Ingram (1959), Bayoumi and Masson (1998), von Hagen (1998), Mélitz and Zumer (1998) and Obstfeld and Peri (1998). The USA is a typical example of individual states whose tax rates vary (for instance, personal income tax, sales tax, estate duty, etc.). Different measures of taxa-tion of natural persons are also found in the can-tons of Switzerland and in other economies of the world, too. The idea of enhancing the taxation methods of citizens is supported by various works published in Slovakia, such as Horváthová (2009), Ivaničová (2011), Neupauerová (2012), Sedmi-hradská (2012) and Radvanský (2013).

Our article presents a simple way of calculat-ing an optimal rate of income tax for economi-cally active population of eight regions in Slova-kia based on the work of von Hagen (1998). The aim of calculating such optimal tax rate is to cre-ate balanced incomes and consumption of the population in the region. For that reason we have only calculated the optimal income tax from de-pendent activity (direct tax is 19 %, which is cur-rently the same for all regions). Other types of taxes are not analysed because of lack of available information from the regions.

Zlatica Ivaničová et al. Management of Regional Consumption 15


1. Development of Slovak economy during the years 2004, 2009 and 2012 In order to create a projection about the develop-ment of Slovak economy during the years 2004 (accession to European Union in May), 2009 (joining the Economic and Monetary Union in January) and 2012, at this point we shall cite the data about the development of chosen indicators: the Gross Domestic Product (current prices, mil. EUR), average monthly salary of employees (EUR), rate of unemployment defined by LFS (%), and final consumption of households (mil. EUR).

Table 1 Chosen macroeconomic indicators

Year 2004 2009 Rise/Fall** 2012* Rise/Fall***

GDP (mil. EUR) 45161 62794 39 % 71096 13 %

Average monthly wage of employees (EUR)

525 744 42 % 805 8 %

Rate of unem-ployment (%)

18,1 12,1 - 6 % 14,0 1,9 %

Final con-sumption of households (mil. EUR)

25455 37637 48 % 40307 7 %

Source: Statistical Office of the Slovak Republic, *preliminary data, **5-year period, *** 3-year period

When we evaluate the development of Slovak

Republic after its entry into the European Union, we could say that during the years 2005-2009 there was a strong revival of the economy judg-ing, for example, by the increase in wages (app 8,3% per annum) or by the growth of consump-tion (app. 9,6 % per annum). These factors acti-vated the expansion of production and the growth of the rate of employment. However, following the crises during the years 2010-2012 there was a strong deceleration of the wage increase (app. only 2,67 % per annum) and for the consumption (app. only 2,33 % per annum). These facts caused a fall in demand, rising unemployment rate and slowing down the expansion of production (growth of GDP was app. 4.3 % per year). Since the growth of GDP depends on the growth of con-sumption, the positive balance of economy in our country is demonstrated only by the export of automobile production of Volkswagen, Peugeot and KIA companies.

We assume that there is a possibility to in-crease consumption by means of management of assessed taxes in individual regions. To prove that, we will perform the analysis of Slovak econ-

omy during the years 1997-2009 in eight regions of Slovakia, classified by means of NUTS3. The year 2010 is not included because the methodol-ogy of data structure and database calculation has been changed.

The economic potential of individual regions in the Slovak economy could be sufficiently de-scribed by means of labour productivity defined as the ratio of produced average monthly GDP to the average gross monthly earnings in EUR. Fig-ure 1 shows that the labour productivity is the highest in Bratislava region. It is much higher than the labour productivity in the Slovak econ-omy as a whole. The lowest labour productivity is in Presov region.

Figure 1 Ratio of produced average monthly GDP to

average monthly wage Source: Authors based on Statistical Office of the Slovak Republic

We can state that the unstable development of

economic potential and related disparity of indi-vidual regions in Slovakia is coupled with perma-nent deficiency of financial resources. Inadequate infrastructure of regions used to slow down the flows of foreign capital. There is also insufficient support for small and medium – sized entrepre-neurships.

On the one hand, inadequate salary administra-tion (wages are very low, the smallest in the European Monetary Union), coupled with inade-quate difference between the minimum wage and the social benefit, do not motivate people to seek employment. On other hand, high rate of unem-ployment causes a lower income to the state budget from taxes.

Low earnings, high unemployment and low consumption of the population do not support an increase in economic activity in regions. There are no new job positions generated either, and many small and medium – sized enterprises are liqui-dated. Therefore, there are some questions on how to manage the decrease of disparity in the produc-tion potential of economically weak regions. Is it possible to increase consumption of the regional

2

2,5

3

3,5

4

4,5

5

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

SR

BA

TT

TN

NR

ZA

BB

PR

KE

16 Zlatica Ivaničová et al. Management of Regional Consumption


population? What is the way to increase standard of living of regions? We shall try to answer these questions in section 3 of this paper.

2. Regional measure of taxation given by von Hagen Let economy be subdivided into n regions (

ni ,..,2,1 ). Let us assume that a representative

consumer in each region earns income ity in time t , which is random variable with expected mean

0iy and constant variance. For simplicity, the model does not consider savings. Let the con-sumption of the representative consumer itc in

each region be itit yc . If consumers are risk averse, then the government may enhance the fi-nancial situation of the population using the fiscal policy of distributing the risk among regions in such a way that will define various measures of taxation.

The government would use three types of tools:

1. Taxation independent of state 0i like re-gional taxation of property, road tax, etc...

2. Taxation dependent on state ii y , which is the same for all regions.

3. Subsidies ii yg dependent on state, stated to supported consumption in the re-gion.

If it is assumed, that there exists only taxation

and subsidies dependent on state, fiscal policy does not have resources to evenly distribute risk among regions. Optimal distribution of consump-tion risk in the region is possible to obtain by means of selection of such tax (personal in-come tax) which will minimize variance of con-sumption itc .

In the study of von Hagen (1998), the optimal value of taxation for region i is defined as:

iii

iiii ww

ww

21

, (1)

where

t

iti y

ywvarvar

, (2)

i is the coefficient of correlation of average gross income for inhabitants in the region i with average gross income of the total national popula-tion,

tit

titi yy

yyvarvar

)(cov , 1,1( > (3)

On the basis of model (1)-(3), it is possible to

ascertain: optimal measure of taxation i for re-

gion i depends on i – correlation of the region i

and on iw - ratio calculated as standard deviation of incomes of the region i (in the numerator) and the standard deviation of regional average in-comes (in the denominator). If all shocks accrued in regions are not correlated and equally distrib-uted, then optimal value for equalization of all incomes is

0yyyc titit . (4)

In general, (4) is invalid. For regions with high

risk, where 1iw , the optimal value of taxation

increases with the correlation i . For

212

i

ii w

w

, the optimal value of taxation in-

creases because the relative measure of variability wi has increased. It means that regions with higher risk need higher insurance. It is possible to state that regions with a variety of factors of risk re-quire different measures of taxation.

For all reasons provided so far, it was as-sumed, that there is a possibility to find out a rate of taxation levied by the state, which could be optimal for all regions. To apply the described model (1) - (3) to the Slovak economy, we have modified some assumptions in the following way:

The income of the inhabitants of the given region is determined as wage fund in re-gion i = average gross monthly earnings of employees in region i multiplied by the number of economically active persons (la-bour force) in region i.

Taxation independent from the state ( 0i ) is determined by municipalities of each re-gion (different taxation of property, road taxation, taxation of household animals,

Zlatica Ivaničová et al. Management of Regional Consumption 17


etc.). Because this taxation is different for each region and remains in the region, we did not include it into the analysis.

Taxation dependent on state ii y was calculated in two ways: first, we calculated the adjusted average monthly salary (ad-justed from transfer to social and health in-surance

1 companies) which was taxed by

the: 1. optimal measure of taxation given by (1)-

(3), 2. flat rate taxation 19 %. Subsidies dependent on state ii yg ,

given for supporting consumption in the region, were not included.

3. Results of net income analysis for the regions of Slovakia We would like to present how the consumption volume of private persons could be increased by means of using optimal measure of taxation for net average monthly earnings (gross average monthly earnings adjusted from the payments of social and health insurance) in regions.

To conduct this analysis, we used the theoreti-cal ideas from Section 2 of this article. As it was mentioned, the analysis was done on data from the years 1997 and 2009 published in the Regional Statistical Year Book. The annual wage fund for every region and also for the entire state was cal-culated as gross average monthly salary multi-plied by the number of active inhabitants of the given region, but pensioners were excluded. The population’s personal savings were not taken into account, according to the assumptions of the model.

The formula (2) and (3) was used to calculate

iw and i respectively, for seven regions of Slo-vakia i = 1,2,..., 7. The Bratislava region was not included because of very high average monthly salary, higher than average monthly salary in Slo-vakia. Various measures of taxation

7,...,2,1, ii were calculated by formula (1). The results for each region are summarised in Table 2.

1During analysed period there were several changes in tariff rates

to social and health funds. These changes were not taken into the account.

Table 2 Optimal measure of taxation of i together with

iw for each region

TT TN NR ZA BB PR KE

iw 0.115 0.101 0.119 0.110 0.086 0.096 0.117

i 0.130 0.112 0.134 0.123 0.094 0.103 0.132

Source: The authors’ own calculation

Some relations among values of iw and opti-

mal measure of taxation i are available in Table 2. The smallest optimal taxation (9.4 %) would be implemented in the region of Banska Bystrica. The average rate of unemployment in this region was the highest, amounting to 20.95%, and the average wage-fund the smallest during the ana-lysed period, even though the average monthly salary was 30 EUR higher than the average monthly salary in the region Presov. Region Presov had the lowest average monthly salary during the analysed period. Table 3 shows the results of regional average net monthly earnings calculated in two ways: 1) with optimal taxation

i and 2) with taxation of 19 % together with their growth in percentage.

Table 3 Growth of net monthly disposable earnings

(in %) in 2009

Region TT TN NR ZA BB PR KE

Average net monthly earnings after optimal

taxation i

596.43 566.27 563.05 559.06 562.41 543.28 620.81

Average net monthly earnings after taxation

19,0i

545.43 509.75 504.29 514.09 490.86 472.49 552.98

Growth of net monthly disposable earnings (%)

9.3 11.1 11.6 8.7 14.58 14.98 12.27

Source: Statistical Office of the Slovak Republic and the authors’ own calculation.

It is clear from Table 3 that net earnings of

employees taxed by the different taxation rates are higher than by means of true flat rate of taxation of 19 %.

The average growth of net monthly disposable earnings in all regions was approximately 11,8% in 2009, in comparison to the total net disposable income.

Average monthly net earnings calculated on the basis of optimal taxation could be higher in the region Presov (about 14,98 %) and also in the

18 Zlatica Ivaničová et al. Management of Regional Consumption


region Banska Bystrica (about 14,58 %). As we know, both these regions are classified in Slova-kia as very poor, with the lowest average gross monthly earnings and the lowest values of pro-duced GDP per capita, coupled with the highest rate of unemployment.

Based on a very simple assumption, we would propose that the value of net earnings determines the value of consumption, that various rates of taxation for individual regions would allow the population to increase their consumption, and thus it would also increase domestic demand.

The increase in demand would result in the rise of economic potential of the regions, increase its employment rates, and also the income from taxation to the state budget in the long run.

The living standard of inhabitants in Slovakia would increase as well; and this is the goal of good governance in each country, not only in Slo-vakia.

Conclusion This article proposes the way how to balance the unequal consumption across individual regions. It is provided based on several assumptions:

1. The analysis was done for direct income tax (income taxation of private persons from dependent activity only).

2. Consumption is equal to income. 3. Based on abstracts of analyses comprising

retail savings, it can be presumed that other types of taxes and subsidies flow to the re-gions as well (which cannot be confirmed due to lack of available of data).

Despite such simplicity of presented model, we can conclude that different taxation rates for the population of different regions could be used as an internal tool for supporting economic activ-ity in the region, decreasing regional disparity and regularising their standards of living. We believe

that additional increase in direct income tax for the population of Slovakia is an enormous obsta-cle to further economic development of the Slo-vak Republic. SM

This paper is supported by Grant Agency of Slovak Republic -

VEGA, grant no. 1/0285/14 "Regional modelling of the economic growth of EU countries with concentration on spetial econometric methods".

References Bayoumi, T., & Masson, P. R. (1998). Liability-creating

Versus Non-liability-creating Fiscal Stabilization Policies: Ricardian Equivalence, Fiscal Stabilization and EMU. Economic Journal, 108 (449), 1026-1045.

Horváthová, L. (2009). Impact of fiscal decentralization on the local budget in Slovak Republic. In Theoretical and practical aspects in public finance (pp. 1-10). Praha: VŠE Praha.

Ingram, J. C. (1959). Sate end regional payments Mechanisms. Quarterly Journal of Economics, 73 (4), 619-632.

Ivaničová, Z. (2011). Theoretical principles of intraregional distribution of risks. AIESA the 14-th international scientific conference [electronical source]. Bratislava: EKONÓM, University of Economics Bratislava.

Mélitz, J., & Zumer, F. (1998). Regional Redistribution and Stabilization by the Centre in Canada, France, the United Kingdom and the United States: New Estimates Based on Panel Data Econometrics (Discussion Paper 1829). London: Centre for Economic Policy Research.

Neupauerová, Z. (2012). Consolidation of the financial regional power based on the increasing of the taxes. The First International Internet Conference “Young Science”. Bratislava: University of Management and Public Administration.

Obstfeld, M., & Peri, G. (1998). Regional Non-Adjustment and Fiscal Policy. Economic Policy, 13 (26), 205-259.

Radvanský, M. (2013). Creation of the Regional Models and their Application in Slovak Republic, unpublished dissertation thesis, University of Economics in Bratislava, Bratislava.

Sedmihradská, L. (2012). Property tax in the Czech Republic and Slovakia since 1993, MPRA Paper No. 42259. Prague: University of Economics Prague.

von Hagen, J. (1998). Fiscal Policy and Intranational Risk-Sharing (Working Paper B13). Bonn: Center for European Integration Studies, Rheinische Friedrich-Wilhelms-University.

Correspondence

Zlatica Ivaničová

Faculty of Economic Informatics, University of Economics Bratislava Dolnozemska cesta 1/b, 85235 Bratislava, Slovakia


STRATEGIC MANAGEMENT, Vol. 19 (2014), No. 2, pp. 019-026 UDC 005:658.7:[004.4

Received: November 15, 2013


Open Source ERP as Supply Chain Management Support

Jelica Trninić University of Novi Sad, Faculty of Economics in Subotica, Serbia

Jovica Đurković University of Novi Sad, Faculty of Economics in Subotica, Serbia

Lazar Raković University of Novi Sad, Faculty of Economics in Subotica, Serbia

Nenad Mirkov University of Novi Sad, Faculty of Economics in Subotica, Serbia

Abstract The article discusses the application and optimal adaptation of technological tools to support efficient opera-tions and successful positioning companies and enterprises in the market competition. The strategy for supe-rior execution of business processes implies technical support and integration of software solutions as well.Supply chain management is becoming increasingly significant in business, thus this article is concerned with analyzing and proposing one method for its implementation. Supply chain management is viewed through theimplementation of ERP systems, since these systems can significantly improve the control over operationsthroughout the company or enterprise. Opting for open source, as a modern business paradigm, has its bene-fits, since the costs of open source software tools are much lower, and the software itself is reliable and effi-cient enough. Keywords Supply chain management, ERP, Open Source.

Introduction Especially over the past twenty years, technologi-cal innovations have been changing the way com-panies operate to a great extent (Fawcett, Wallin, Allred, Fawcett, & Magnan, 2011), and made a great impact not only on information technology, but also the economy and modern society in gen-eral. It is an indisputable fact that business pro-cesses undergo development and innovation at a growing pace (Đurković, Trninić, Vuković, & Raković, 2010). In order to maintain continuous development and gain competitive advantage, organizations need to modify their information support to appropriately meet contemporary re-quirements.

In the midst of continuous change, especially in times of crisis, it is essential for all of the pro-cesses within a company to run as efficiently as possible. Supply chain management is becoming

recognized as a growingly significant an element of business, which can operate effectively only with a suitable software support. The essential and continuous intent to minimize costs may be car-ried out in the best possible way only by adopting a systematic approach to the integration of cus-tomers, suppliers, and storage, while simultane-ously meeting customers’ needs (Symeonidis, Kehagias, Koumpis, & Vontas, 2003). Implemen-tation of this integration requires a sophisticated approach to supply chain management. Supply chain management is becoming a key element of business operations (Heng, Wang, & He, 2005), one that virtually cannot be considered outside the context of ERP. This is exactly why the subse-quent section provides a short overview of ERP.

20 Jelica Trninić et al. Open Source ERP as Supply Chain Management Support


1. ERP ERP (Enterprise Resource Planning) is an inte-grated information system that is supposed to cover all functions and processes within an organ-ization. These systems can significantly improve control over operations throughout the whole or-ganization, thus facilitating more effective and efficient business. Balaban, Ristić, Đurković, Trninić and Tumbas (2006) state that they achieve their business goals by means of the organiza-tion’s ERP systems, specifically by introducing an integrated database enabling them to obtain nec-essary information for managing the organization.

There are numerous ERP systems available in the market, but organizations often choose to build them themselves. ERP systems provide a variety of functionalities that are represented as modules or subsystems. Because of their diversi-ty, there is no single classification of modules. Some of the modules are (Balaban, et al., 2006; Eresource, 2009) :

Finance Module, Human Resources Module, Sales & Distribution Module, Inventory Management Module, Production Module etc.

In the beginning of the development of ERP systems, they mostly represented an independent concept; however, over time, as business require-ment became more specific, numerous new tech-nologies and services became adjoined with ERP systems. Leskovšek and Golob (2010) mention, among other, the following reasons for replacing and modifying the existing ERP systems: outdated technology, company growth, new business pro-cesses, partners’ demands, new market channels etc. Traditional ERP has evolved into the ERP II concept (Moller 2005; Bakht, 2006; Mattison, 2011), which nowadays symbolizes an intercon-nected infrastructure, without which modern busi-ness is impossible. ERP II concept consists of four layers (Figure 1) (Moller, 2005):

1. The core components: represents the inte-grated database and applications that com-municate with the database.

2. The process layer: this layer represents the traditional ERP concept, the one that ERP II concept relies on.

3. The analytical layer: this layer incorporates new technologies, such as: Supply Chain Management (SCM), Customer Relation-ship Management (CRM), Supplier Rela-

tionship Management (SRM), Product Lifecycle Management (PLM), Employee Lifecycle Management (ELM) and Corpo-rate Performance Management (CPM).

4. The e-business layer: this layer facilitates communication and integration between the ERP II system and external entities. This layer encompasses applications of fol-lowing types: Business to Consumer (B2C), Business to Business (B2B), Busi-ness to Employee (B2E) and Enterprise Application Integration (EAI).

EAI

ERP

SCM

CRM

HRM

CPMPLM

SRM

B2E

B2CB2B

Figure 1 Conceptual framework of ERP II Source: Moller, 2005

As we can see, supply chain management is an

integral part of ERP II concept’s analytical layer. We have briefly reviewed the main characteristics of components of SCM.

2. Supply chain management Information technology has transformed the way supply chain is managed, thus making the most efficient execution of the principal components of the supply chain possible (Huynh, & Chu, 2011). It is very important to retain existing customers, and certainly more cost-effective than attracting new ones (Vuković, Raković, & Đurković, 2011; Trninić, Đurković, Vuković, & Raković, 2012). This is incomparably easier by means of SCM and CRM application. According to Wailigum (Wailgum, 2008), supply chain management con-sists of five basic components:

1. Plan. This component is a strategic part of SCM, and is, among other things, associat-ed with developing a set of metrics to mon-itor the supply chain.

2. Source. After defining the strategy and metrics, the following step is to select a supplier. A set of pricing, delivery and

Jelica Trninić et al. Open Source ERP as Supply Chain Management Support 21

STRATEGIC MANAGEMENT, Vol. 19 (2014), No. 2, pp. 019-026x

payment processes are developed at this stage, as well as metrics, created to control these processes.

3. Make. After the strategy has been set and suppliers have been selected, it is necessary to create a schedule of activities that are re-quired to complete production, testing, packaging and preparations for shipment.

4. Deliver. After the manufacturing process has been completed, it is necessary to co-ordinate the reception of purchase orders, storage system, and transporters, all for the purpose of delivering products or services to the customers.

5. Return. It is often necessary to take back damaged products and provide support to customers that experienced certain prob-lems with the delivery.

It is virtually impossible to execute all of the above components of SCM efficiently without a well-implemented ERP system. A well-designed ERP system can be an indispensable foundation of efficient supply chain management (Huynh, & Chu, 2011; Fawcett, et al., 2011). In recent times, software manufacturers have been implementing supply chain management modules into their ERP systems more often. According to Caruso (2009), there are four ways that an integrated ERP system can improve supply chain management:

1. The information stored in ERP systems provides an opportunity to better under-stand the customer's wishes.

2. Providing information about goods throughout the entire supply chain. This in-formation enables the company to make the best production and purchasing plan. Cer-tain information on goods must be made available to customers.

3. Integrated ERP systems should facilitate integration with suppliers and thus reduce costs manufacturing and warehousing costs.

4. Enabling supply chain performance man-agement by means of defining key perfor-mance indicators and measuring their ful-fillment using information stored in the ERP system.

The open source community is on the rise; more and more applications coming from this community can almost equally rival ones coming from the commercial software industry. Since the costs of open source software tools are much low-er, these tools are very appealing.

3. Open Source - the theoretical basis The Open Source Initiative did not emerge as an entirely new concept when it comes to terms of use and redistribution of software. Long ago in 1984, Richard Stallman founded the Free Soft-ware Foundation, which defined user rights thru the GNL license (Bona, & Ockman, 1999). Of the most important provisions that constitute this li-cense, one should mention that it implies free software download, its free alteration or extension of its source code, with the obligation that further redistribution of altered or extended software has to be made with the same licensing rights.

Although it was not promoted in the same fashion, the definition of open source encom-passes many Stallman’s ideas and can be per-ceived as a derivative of his work and efforts. The definition was set by the Open Source Initiative, founded in 1998 by Bruce Perens and Eric Ray-mond. This definition represents a standard, pre-sented as a document under the name of “The Open Source Definition”. This document is used when deciding whether a software product can be released under an Open Source license. For this to happen, the software must fulfill ten criteria set by Bruce Perens (The Open Source Definition, n.d.). The basic principles are inherited and represent identical or slightly modified rights compared to the license set by Stallman.Undoubtedly, the big-gest advantage is the mandatory delivery of the complete source code along with the software, and freedom to modify and expand the software. This most prominent example of this is debugging performed by a vast number of users, where de-bugged versions are promptly available to every-one. Contrary to that, when it comes to commer-cial software, a significantly smaller number of programmers are engaged on debugging, so de-bugged versions have to be waited for. Another advantage that should be mentioned here is soft-ware localization, which is the reason why open source software can be downloaded in many lan-guages. Owing to its liberty and independence from platforms and programming techniques, open source has instigated the development of numerous projects and foundations, such as Apache Software Foundation – creators of Apache web server, Eclipse Foundation with their Eclipse development environment and the Mozilla Foundation – the author of the most widespread web browser. New organizations opt for more sophisticated models of governance; their mem-bership is therefore most commonly formed on a legal level (Letellier, 2008).



3.1 The economic paradigm When considering open source software develop-ment, the issue of the economic viability immi-nently arises, since these projects are based on free licenses, where the source code is distributed and given to users free of charge. It is a fact that the advocates of open source inadvertently created a new and unexpectedly successful economic par-adigm in the software industry (Perens, 2006). In order to understand the economic paradigm of open source software, we should consider the fact that nowadays software is an indispensable part of every large company’s business operations, with-out which the company would be less competitive or even cease to operate. This relates to compa-nies that are not in software production business. Before open source licenses appeared, software was distributed through retail chains, while soft-ware prices were quite high, due to accumulated production and sales costs. Since the consumer has to pay for the software in advance, and then start using it, it often happened that only through the deployment of the software did consumers come to a conclusion that the software was defec-tive or doesn’t meet all their requirements. The other solution implied utilizing the company’s own resources for software development, which was possible only in larger companies that had IT experts available in their team. This is a somewhat better option for a company that has a need for specialized software, but the costs are still there, as it is necessary to employ human resources over a long period of time required for software devel-opment, and subsequently for various upgrades and updates. Such software often has unused po-tential that can be noticed only if other companies start using it as well.

It is this issue that stimulated the successful development of the open source paradigm, where a great number of entities (individuals, compa-nies, academic institutions, etc.) jointly participate in the development and improvement of software. Development process usually begins with an indi-vidual initiative, very similar to software devel-opment by experts within a company. If this is a product that might be useful for others, it gets published, whether it is completed or not. Only when other entities begin to use this software product does the open source paradigm begin to function fully (Perens, 2006). In a nutshell, if the software is useful to others, they begin to use it more intensively, and given the fact that the source code is available, modify and expand its modules and return such expanded and modified

code to the community. Finally, it often happens that an individual or a company that started de-veloping the software, get their software back debugged, expanded with some functionalities, completely free and without additional costs and employment of their own human resources. Linux operating system can be given as an example. It originated as an excellent replacement for previ-ously widespread Unix OS. Many companies tried to develop an operating system that would out-shine Unix OS. However, Linus Torvalds man-aged to do this himself, owing to the open source paradigm. Since 2006, it is believed that only two percent of the Linux kernel was written by Tor-valds, and that the rest is the contribution by the open source community.

3.2 Benefits and risks of OSS Development of open source software is much faster than the development of commercial appli-cations. Given the access to the source code, software development lifecycle can be infinite, that is, while the need for extensions and devel-opment of new versions exists. At this point it would be useful to emphasize the risk associated with commercial software. If the company that developed the software goes out of business, the possibility of debugging, expansion and develop-ment of new versions ceases as well. As regards user support, open source tools once again have the upper hand, since companies involved in the development of commercial software need to al-locate financial resources for their employees, while open source community provides support through forums or websites. Of course, there is a risk that this necessity will disappear, hence the company must determine the significance of the open source tool on the market and the size of the community that uses and develops it, since the likelihood of a tool’s survival and its support is directly proportional to the size of the open source community (Kenwood, 2001).

The fact that a great number of developers and companies use and develop the software causes another problem, which is how to synchronize new versions and bug fixes. This problem can be resolved by means of revision control tools that automatically update software distributed via a centralized server. In order avoid branching of an open source software, a formal corporate structure is necessary behind the project. The Linux operat-ing system, whose kernel is identical in 99% of cases, may serve as an example of best practice. Apache is another example of a company that



provides professional support for their of open source projects. Consistency is insured thru the use of Apache Subversion tools. Subversion pro-ject was initiated in early 2000, replacing the pre-vious CVS revision control system (Pilato, Collins-Sussman, & Fitzpatrick, 2004).

Open source solutions have proved to be ex-ceedingly successful when it comes to enterprise resource planning and management tools, chiefly owing to these advantages in development and implementation. The Apache Company is behind the development of a open source project under the name of “Apache Open for Business” (OFBiz), which is used for electronic customer relationship management, supply chain manage-ment, human resources management and manag-ing other corporate resources. A short overview of this project is provided in the following section.

4. Apache Open for Business Apache OFBiz is an open source development framework, designed to ease the development and implementation of enterprise resource planning (ERP) software. The framework itself is imple-mented in Java, and system configuration is based on XML. ERP software usually denotes systems that seek to integrate all business processes and data associated with them into a single unit. OFBiz development framework comes bundled with all necessary elements one might expect of an ERP software. The user can employ this tool as a fully complete and functional solution, or choose to spend time and money on customizing and developing a solution based on the OFBiz code, which would be in accordance with their needs, that is business requirements (Wong, & Howell, 2008). OFBiz is distributed under the Apache License Version 2.0, which allows the user to use, adjust, modify, upgrade, repackage, as well as to sell solutions they developed based on the OFBiz code, entirely free of charge. By down-loading and installing the development frame-work, users get a fully functional tool for invento-ry management, accounting, supply chain man-agement, manufacturing, with exceptional options for maintaining and modifying the system. By installing, users also get an e-commerce applica-tion that is can easily compete with applications worth millions of dollars, such as those used by the Amazon company (Wong, & Howell, 2008).

In an attempt to illustrate the magnitude and the significance of this product, we may state that the complete solution consists of over 180,000 lines of Java code, and about 195,000 lines of

XML. The data model consists of over 700 do-main classes, designed based on industry practice. Large companies such as British Telecom and the United Airlines can be mentioned as some of the many users of this software (Hessellund, & Sestoft, 2008).

4.1 Origin and development OFBiz was created in May 2001, when David E. Jones and Andy Zeneski realized that they were working on the similar subject separately, and that the existing solutions were inadequate at that point. They concluded that these problems can be overcome by means of an open source model. Over the following five years, the OFBiz commu-nity has grown, as well as the number of compa-nies that adopted this solution as their ERP sys-tem. In January 2006, Apache Incubator Project Management Committee accepted this project, and in December of the same year, the company’s Managing Board declared OFBiz the leading pro-ject. Up to now, OFBiz remains a very active, nonprofit project, driven by a community of users and volunteers (Wong, & Howell, 2008).

4.2 Architecture OFBiz is an open source application, written us-ing Java, Java Script, Groovy programming lan-guage and XML. During the installation, it uses Derby as a database, which is reasonable, since Derby is an Apache product and an open source relational database entirely implemented in Java. There is however, has a downside to this, which is reflected in the lack of a simple database man-agement system with a user interface. Fortunately, this obstacle can be overcome by selecting anoth-er database during the installation. OFBiz sup-ports all relevant databases, such as: Oracle, MSSQL, MySQL, Postgres, Sybase, Firebird and others.

Structure of the database used by OFBiz is based on Silverstone’s Data Model Resource Book, which encompasses over 800 entities and more than 3000 relations. This universal model is widely accepted and used in numerous applica-tions intended for supporting corporate opera-tions. Structures of tables and relations between them are completely described in XML files, and thus can easily be modified and adjusted. The on-ly limitation is that the code must be recompiled after each alteration of entity structure.

OFBiz uses the three layer architecture model and controller.xml file as the main servlet for ac-



cepting and processing requests, regardless of whether they are directed to a page or service.

Figure 2 OFBiz architecture Source: Authors

Data layer is responsible for managing the da-

tabase. The Entity Engine is the basis of this layer. It is responsible for connecting to a database, searching and reading data, entering, and so on. Tables are defined within the entitygroup.xml file, while relations and primary keys are defined the entitymodel.xml file. Owing to this approach, even less experienced programmers can be productive, even without any knowledge of SQL.

Business logic layer is based on service-oriented architecture, web services (SOAP, XML). All definitions are stored within the servicedef directory, where the implementation of services is placed within the script subdirectory if it is XML or src if it is Java. Service engine is responsible for managing and calling these ser-vices. In a nutshell, services are simplified pro-cesses that execute a certain task. When defining a service, it is necessary to determine input parame-ters that service uses for processing, as well as output parameters, which the service will return as a result of processing (Jones, 2006).

The top layer is the presentation layer that stands for applications OFBiz ERP's. Owing to the great flexibility of the work environment, de-velopers can easily add their own applications, or modify the existing ones.

OFBiz uses following the technologies to run: Event Driven Architecture (EDA - Architecture driven events) and ECA (SECA, EECA, MECA). ECA is an acronym for Event Condition Action (actions caused by events). SECA for services, EECA entities, MECA for mail (Jones, 2006). On account of ease of use, the XML Mini-Lang was

introduced as an addition to a vast number of tools used by OFBiz. It proved to be a great tool for simplifying the coding of different operations, often by two-thirds, compared to equivalent Java methods. Simplicity of the code enables even semi-professional users of OFBiz to understand it. This tool is most frequently used to process input data, connect services into superior units, com-municate with the database and so on.

Groovy programming language is used in newer versions of OFBiz, as a substitute for pre-viously used Bean Shell. Groovy is an object-oriented programming language intended for the Java platform.

4.3 System Modules Party is associated with CRUD (Create, Read, Update, Delete) functions for users who may be individuals (person) or legal entities (party group). This has proved to be the best solution for avoid-ing data redundancy in some other data models. This entity is closely related to Contact Mecha-nisms, which contains data on the address, tele-phones, email, web address etc. There is also a relation with the Roles table, which is associated with the entity’s role: customer, supplier, employ-ee, manager, salesperson and so on. Practically, one entity can have multiple roles within the sys-tem (Jones, 2006).

Product entities contain data on products that the company manufactures or uses (even the ma-terials used in manufacturing). Products are gen-erally divided into goods and services. Goods are divided into raw materials, intermediate products and finished products. Products are organized in categories. One product may belong to multiple categories, and even categories may be interrelat-ed. Categories are further organized into catalogs, which represent a starting point when entering a group of products. Inventory management and promotions are related to catalogs, which enables different sales channels to use same product group in different ways. This module supports defining different prices for different customers, as well as the use of multiple currencies, with conversion according to a defined rate. It is also possible to define product availability with a start and end date, along with many other options (Jones, 2006).

Order entities contain information on orders, generated by the customer through the e-commerce application, although there is a possi-bility to enter them from the application. Each new order is automatically recorded and presented

Data layerEntity Engine

Business logic layer

Service Engine

Presentation layer (user interface)OFBiz applications

Controller.xml(request-map) , (view-map)



in this module, making it possible for the manager to further administer the order – send a pro forma invoice, record payments, dispatch goods etc.

Facility represents a building or some other physical location. Examples of facilities include: warehouses, retail stores, company’s office build-ings, private premises in a large office building, and so on. This module is related to the Contact Mesh information set. Facilities are related to in-dividuals or legal entities (individuals work within a facility, legal entities control it, etc.) Products and product groups are also associated with ob-jects (Jones, 2006).

Shipment entities are used for monitoring in-coming and outgoing shipments and updating quantities of goods in stock.

Marketing module is used in various market-ing campaigns within a company, as the entities belonging to this module facilitate efficient moni-toring and analysis of a campaign’s success.

Conclusion Adequate selection and implementation of soft-ware tools that ought to provide support in moni-toring operations, decision-making and increasing companies’ competitiveness in the market is al-ways a complex task. The process of designing and developing an information system never has, nor can have, all of the software components pre-defined. Information technology has transformed the way supply chain is managed, making the most efficient execution of the principal compo-nents of the supply chain possible. Analysis of functionalities of supply chain management sys-tems that encompass business processes reveals that there are differences and specificities for each company, depending on its operations. The best solution would probably be to design a specific software solution for each company. However, the issue of cost-effectiveness of such solutions often arises. Another option could be to choice platform independent applications that be run on different software platforms. If we consider web applica-tions as a possible choice, along with the efficien-cy of cloud computing and obtainment of com-plete open source solutions, choosing the right solution is obviously not an easy task. It is left to each company to assess the advantages and disad-vantages and choose the tool, in accordance with their needs and material resources. Unanswered questions discussed above made it possible to de-liberate over the obvious problems and present one of the possible solutions. SM

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Correspondence

Jelica Trninić

Faculty of Economics in Subotica Segedinski put 9-11, 24000, Subotica, Serbia


STRATEGIC MANAGEMENT, Vol. 19 (2014), No. 2, pp. 027-032 UDC330.13:631.147(497.11)

Received: December 11, 2013


The Role of Organic Production and Permaculture in Ensuring Economic Efficiency of Agroeconomy of Serbia

Jelena Birovljev University of Novi Sad, Faculty of Economics in Subotica, Serbia

Biljana Ćetković University of Novi Sad, Faculty of Economics in Subotica, Serbia

Abstract Consumer awareness of the necessity of eating and living healthy has become an indisputable issue. Organicfarming effectively solves the problem of food quality and safety for human and animal consumption, respect-ing the natural ecological balance. Investment in the development of organic farming on the principles of per-maculture is of permanent significance because they serve as the basis of efficient conservation of biodiversityand survival of humanity. Organic farming and permaculture are focussed on the future and the development, not only in terms of environmental protection and improvement of human health, but also from the standpointof economic prosperity. Keywords Organic farming, sustainable development, permaculture, agriculture.

Introduction Organic farming takes up an especially prominent place in the overall modern-day economic condi-tions. Unlike the times of industrial revolution, when the foundations of the business operations of modern-day enterprises were laid, people fea-ture as a less scarce production factor nowadays, whereas natural resources and the ecosystem, i.e. the natural capital, providing the basic prerequi-sites for life, is diminishing dramatically and be-coming an increasingly costly resource (Davčik, 2004).

Organic farming and permaculture (PERMA-nentagriCULTURE) emerged as a result of seek-ing a solution for re-establishing the disrupted balance in the availability of individual produc-tion factors and preserving the natural resources.

In its initial development stages, the idea of permaculture was considered as subversive and revolutionary, only to become a basis on which entire urban communities are formed today. Peo-ple have started shifting back from consumerism

to sustainable lifestyle, as a result of the crisis and awareness that a change in lifestyle and social organisation system were necessary. Permaculture is often understood as a mere return to the tradi-tional patterns of the past, although it is far more complex, as it represents a synthesis of traditional agricultural practices and innovative technologies, utilising the knowledge of many scientific disci-plines to represent a new lifestyle, with recognis-able standards and principles. The implementation of environmental principles and strategies re-establishes the balance in disrupted ecosystems.

Without disregarding the positive impact of the green revolution in solving the problem of “food-poverty-population” in the developing countries, the incessant favouring of chemical-based strategy in food production is causing con-cern for the future of our planet.

The world must turn to finding a possibility to rely on renewable energy sources, available at hand. Organic production places primary focus on recycling organic waste as a substitute for using

28 Jelena Birovljev et al. The Role of Organic Production and Permaculture in Ensuring Economic Efficiency of Agroeconomy of Serbia


chemical fertilisers, coupled with the use of avail-able sources of energy, introduction of and adher-ence to crop rotation that would enable a natural balance of pests and reduce the use of pesticides, higher reintegration of cattle and crop farming, etc.

A real breakthrough in the technology of radi-cal farming is associated with establishing new priorities in the research domain. The most sig-nificant one is reaching full agreement on what should be the fundamental issues of post-industrial agriculture.

This area is full of incongruity. A considerable number of researchers still start from the basic assumption such as: that the most important ob-jective in agriculture is achieving high yields: that the need for energy in agriculture will keep being satisfied with cheap energy sources; that the pri-mary agricultural production segment can func-tion efficiently in an already created industrial environment (Zakić & Stojanović, 2008).

It is certain that the world is faced with an-other reality. Inexpensive energy sources are be-coming increasingly scarce. An important role of agriculture is to harmonise the use of its resources with environmentally acceptable methods. The strategy of developing farming chemicals, mecha-nised cultivation and genetic engineering opens even more alternatives in agriculture. All this is leading towards new areas of scientific research in agriculture.

Modern agriculture, with its tendency to merg-ing plots of arable land, monoculture, increasing use of machinery and chemicals year after year degrades the soil, destroys natural biodiversity and pollutes the environment (Sep Holcerova knjiga “Permakultura”, 2012). Small farmers are an endangered species, exposed to legislation and unpredictable changes on the market. Is there a way to meet our needs cooperating with the nature rather than fighting it?

Organic production relies on natural principles in use for thousands of years already. Permacul-ture goes a step beyond, emphasising sustainabil-ity and collaborating with the environment. The popularity of permaculture is growing as more and more people realise that this cheap and simple cultivation method is an excellent way of obtain-ing healthful fruit, vegetables, and medicinal herbs – more exactly, a healthful lifestyle.

The 20th and the first decade of the 21st century testify that man has reduced nature as well as himself to an object, i.e. a resource to which he relates specifically, which is being returned to him

as the nature’s revenge, that is, the ubiquitous climate change resulting in jeopardised entire global environment.

The danger of endangering the global envi-ronment, the survival and existence of mankind emerged with the development of technology, science and scientific breakthrough. Awareness, however, of the evident danger for the survival of human race is spreading in parallel with the envi-ronmental crisis. The concept of sustainable de-velopment for sustainable future entails a balance between the use of resources and the ability of ecosystems to meet the needs of future genera-tions.

Industrialisation has disrupted the ecological balance to the extent that challenges the survival of life on earth. Production based on developed production forces neglects the impossibility to recover the eco-sphere. Neither man nor nature can recover the destroyed.

The environmental crisis emerged as a conse-quence of globalising economic production activi-ties aimed at acquiring profit. Humanity is facing the problem of exhausted and limited natural re-sources. Nowadays, humans must respond to questions pertaining to energy crisis, demographic explosion, pollution of the natural environment and other questions related to harmonising the natural development with environmental laws.

Bearing this problem in mind requires shed-ding light on man’s moral responsibility, and also social responsibility to the environment, as re-gards the environment. This problem is nowadays contemplatively and critically reflected by the discipline known as environmental ethics, based on moral responsibility, for this is the only way of creating conditions for a higher-quality lifestyle.

1. The interdependence of organic production and biodiversity Biodiversity has been of key importancefrom the very beginning of developing the system of or-ganic farming, focussing on two issues. The first is the impact of agriculture on process quality and concerns the issue of benefit for nature, and the other one concerns biodiversity and the beauty of natural or wild species, habitats and biotopes, down to the landscape level.

The interdependence of organic farming and biodiversity stems from the basic environmental principles of circulation of substances and all forms of life intertwined in nature. Agroecology has always been the basis of agriculture, but em-phasising its role (as cited in Lazić, 2012), signifi-

Jelena Birovljev et al. The Role of Organic Production and Permaculture in Ensuring Economic Efficiency of Agroeconomy of Serbia 29

STRATEGIC MANAGEMENT, Vol. 19(2014), No. 2, pp. 027-032

cance and application has been changing with the growth and development of agricultural system. Traditional agriculture has always relied on agroecology, and so does it now. In addition to providing enough food and other commodities, conventional agricultural production has also pro-duced a range of negative impacts, not only envi-ronmental, but also social and economic.

Numerous agroecological production systems (Lazić & Lazić, 2008) aimed at achieving sustain-ability of farming, that is, overall sustainable de-velopment, have emerged in response to such a condition. Organic farming, regarded as the model of sustainable farming in the EU, is prominent among those systems.

Many studies comparing the impact of differ-ent agricultural systems clearly show the positive impact of the organic farming methods on biodi-versity parameters, such as more various taxa, greater diversity and greater abundance of species, etc (Bengtsson, Ahnstroem, & Weibull, 2005; Fuller et al., 2005).

Unlike conventional agricultural system, ori-ented to purchasing inputs, organic farming places focus on its own inputs in creating production systems adapted to its locality. An organic farm-ing structure is organised in compliance with the system of low external input utilisation levels, relying on its own resources to the maximum pos-sible extent.

The holistic approach of multifunctional or-ganic production, which was created as a supple-ment to agricultural production with non-agricultural products and services, does not allow the application of synthetic chemicals and GMOs. Biodiversity enables variety of production mani-fested through an extended crop mix shift, grow-ing intercrops and cover crops, as well as green manure crops and predators, provided of course, that resistant, indigenous varieties and breeds are chosen. In addition to preserving natural resources and ecosystem, multifunctional organic farming offers additional employment opportunities and achieving higher yields as a basis for a higher quality life in the countryside.

Organic farming focuses on product quality, respecting environmental principles and natural cycles, with a high degree of protection of the eco-system and the environment. Organic farming is defined as a production management system based on environmental principles, high biodiver-sity level, preservation of natural resources, and application of high animal welfare standards, with production methods using natural substances and

methods. Organic farming is not merely agricul-ture that avoids the use of mineral fertilisers, pes-ticides and other synthesised chemicals; it is much more complex than that. With express environ-mental principles, it is sometimes difficult to un-derstand, because it requires understanding, knowing and applying the integrated production system and technology, rather than individual agrotechnical measures (Lazić, 2012).

Today, amid the conditions of evident envi-ronmental and climatic changes, organic farming is of crucial importance. Undoubtedly, the great-est contribution of organic farming is the produc-tion of high-quality, healthful, safe food, and pro-tection of biodiversity.

2. The basic principles of permaculture Permaculture is a holistic approach applicable to all aspects of life. The essence of any sustainable design and practice contains the basic set of val-ues and ethical principles, constant regardless of the situation. The essence of permaculture is in the ethics and design of principles permeating all structures in order to enable the conditions for sustainable development. Developing awareness and adopting traditional values enabling biologi-cal and cultural survival define the ethics of per-maculture and contribute to biological and cul-tural survival. Unlike the concept of currently existing social norms and thinking patterns, per-maculture is retro-innovation.

Figure 2 The basic principles of permaculture Source: The Principles of Permaculture Extend Beyond the Landscape,

2013

1. Care for the Earth – overall care for the planet and life, and reduction of one’s own environmental impact:



2. Care for people – developing love of and respect for oneself as a prerequisite for un-derstanding and love of others, social co-operation, focussing on the positive and developing the opportunities it offers, ac-cepting personal responsibility

3. Fair share – moderation in the consumption of natural and social goods, gaining per-sonal and social benefit from established balance, mastering oneself. “Man who has mastered himself can behave appropriately at any opportunity in an appropriate man-ner. Such a man is rightfully referred to as the artist of living” (Cuvari prirode, 2013).

Permaculture is based on twelve universal principles enabling creative redesigning of the environment, as well as a personal attitude and treatment of natural resources and sustainable communities. They are applicable to various seg-ments of the society. Permaculture is the solution for preservation of rural environment through the organic redesign of the society and culture.

Figure 3 The principles of permaculture Source: The Principles of Permaculture Extend Beyond the Landscape,

2013

Permaculture solutions strive to harmonise the

needs of modern-day man with environmental preservation. In permaculture, man and his actions return to the natural circulation of things, as a part of a cyclical system without waste and wasting energy. Permaculture merges traditional skills with modern achievements and methods.

1. Energy Energy used nowadays is mostly of fossil origin, and its application raises great environmental problems. It is recommendable to use energy from renewable sources. Renewable energy sources are the energy of wind, sun, biomass, tide, and geothermal energy. Sustainable design

and blueprinting may result in high amounts of saved energy. Some of the common and available solutions for households are solar collectors for warm water, wind turbines and solar cells for electric energy, solar cookers, biogas, use of wood for fuel, installing stoves with large thermal mass, etc. 2. Water Water resources are exposed to most polluting systems, because, eventually, all waste waters, oil spills on land and at sea, chemicals from agricul-ture, and urban sewage systems reach subterra-nean waters, rivers and seas. Due to abrupt cli-mate changes, the level of subterranean waters is dropping, thus endangering pumping facilities and wells. Due to all of the above, it is essential to know how to manage water sustainably, save wa-ter, build rainwater accumulation systems, gather precipitation water for agriculture, purify waste water, use composting toilets and purify grey wa-ter with plant-based purifying facilities. 3. Soil Soil is the habitat of people, animals and plants, and also the main source of food for them. As it serves as a filter of precipitation waters, soil qual-ity influences water supplies. Conventional agri-culture, with supporting agro-biochemical indus-try, degrades soil permanently. A response to this destructive trend lies in all types of environmen-tally friendly agriculture and organic food pro-duction. The application of permaculture and other organic solutions in agriculture, construc-tion and infrastructural intervention does not de-stroy soil or pollute subterranean waters. 4. Air Just like other above mentioned elements, air is exposed to all types of polluters, and is essential for life on the Earth. Nature needs to be protected from air pollution, although everyone may influ-ence the quality of air in their own area, at least by their positive example. The use of bicycles, public transport, electric bicycles and moped, biodiesel fuel and bio-ethanol, common automo-bile use and planting trees that will absorb carbon monoxide can influence the air pollution statis-tics. 5. Construction One-third of waste on the world’s landfills is ac-counted for by construction waste, remaining from conventional construction. In addition to

Jelena Birovljev et al. The Role of Organic Production and Permaculture in Ensuring Economic Efficiency of Agroeconomy of Serbia 31


being a great ecological problem on the planet, the newly constructed facilities are unhealthy en-vironment, teeming with toxic substances, and also electromagnetic, light and sound pollution. Investors rarely comply with quality regulations, and new structures are not insulated in accor-dance with energy standards that are inadequate anyway, so that these facilities use huge amounts of energy from fossil fuels for heating, cooling and maintenance. Sustainable construction is full of inexpensive, natural and healthy solutions. The use of local resources supports the development of local communities and reduces CO2 emissions. The past thirty years have seen a rise in the popu-larity of compressed straw boards, earthship structures, houses made of natural material like wood, brick, adobe, stone, clay etc. Structures are insulated with cellulose, wool, expanded clay, straw, coconut fibre etc. Green roofs are con-structed where food can be grown; buildings are designed with vegetable gardens and orchards incorporated in the architecture itself or immedi-ate surroundings. Real productive green oases, healthy neighbourhoods have been created in the centres of many modern cities. 6. Organisation / society A large number of books have been written and many discussions have been held, criticising mod-ern political systems. The political system only presents tangible profit as a goal, not choosing the means of achieving it, responsible for almost all disasters that have happen or will happen to the civilisation and the planet Earth. Political changes are occurring slowly. There are many positive initiatives and projects offering a higher-quality and more integrated view of the perseverance of human communities. These are, primarily, the eco-village movements, numerous towns and cit-ies incorporating into their policies environmental and sustainable principles, commendable projects of many ministries, projects of enterprises acting along ethical principles, and a large number of networked organisations and individuals devising a better future. Care for people is the key factor for successful projects. Real synergy among peo-ple will occur only if things are set up transpar-ently, and if the principle of consensus is applied in decision making.

Conclusion Organic farming contributes to socio-economic and environmentally sustainable development, especially in underdeveloped countries, owing to

the application of organic principles, implying efficient local resource management, and thus cost efficiency. The organic product market at the lo-cal and international level is characterised by huge growth prospects, and it offers creative producers and exporters excellent opportunities for increas-ing income and improving standards of living (Berber, Đokić, & Kočić-Vugdelija, 2011; Bi-rovljev, Đokić, & Ćetković, 2013).

Supporting the thesis that organic farming can contribute to the sustainable development of Ser-bia, we can state that the overall goal of the Na-tional Strategy of Sustainable Development of Serbia related to agriculture is conceived as the creation of cost-effective and environmentally acceptable agricultural production, which should be the basis of livelihood of rural population in areas where there are natural conditions for achieving a competitive level adequate for entry into European and other markets (Official Gazette of the Republic of Serbia, 2005), while the goals of organic agricultural production can be summed up as (Subić, Bekić, & Jeločnik, 2010):

increasing the productive ability (fertility) of soil,

minimising energy input on farms, reducing environmental impact, and maintaining the achieved production level

(Subić, Bekić, & Jeločnik, 2010).

The main obstacle to developing the national organic food market is insufficient demand, mainly caused by two factors: the population’s low purchasing power and inadequate level of information about the advantages of these prod-ucts in comparison with conventional ones (Bi-rovljev & Štavljanin, 2011). Various activities are required in order to raise environmental aware-ness and create the consumers’ nutritional culture (Birovljev & Dujić, 2004, p. 219). This endeavour requires involvement of national institutions, the National Association and all the stakeholders will-ing to get involved more actively into developing organic farming and establishing the standards of this production in the sphere of production, tech-nological, scientific, cognitive and other proc-esses.

Permaculture as such is still inadequately re-searched, although it does not require high in-vestment and projects. Accepting permaculture as a lifestyle and bringing it closer to people would present a significant leap for Serbia, as it makes itself concrete and possible. As it has already been stated above, bearing in mind that a large segment



of Serbian population has rural roots, in villages that are neglected, empty, overgrown with weeds and surrendered to extinction, permaculture is offered not only as a benefit, but also as a salva-tion (Imanje za uživanje, 2012). Another reason is the necessity for Serbia to turn to massive-scale organic food farming which, practically, relies on permaculture, Moreover, bearing in mind that an increasing number of modern people want and try not only to purchase products labelled as ‘bio’, but also to choose and pick them themselves, this possibility and orientation is becoming not only increasingly acceptable, but also inevitable (Imanje za uživanje, 2012).

Bearing in mind all the above, a whole range of facts, internal and external factors point to the inference that the further development of organic farming is based on permaculture principles as not only likely, but essential not only for the world but also for Serbia. Its contribution to sustainable development unifies all the stated facts. SM

References Bengtsson, J., Ahnstroem, J., & Weibull, A. C. (2005). The

effects of organic farming on biodiversity and abundance: a meta-analysis. J. Applied Ecology, 42, 261-269.

Berber, N., Đokić, N., & Kočić- Vugdelija, V. (2011). Organska poljoprivredna proizvodnja kao element strategije održivog razvoja Srbije. . In Agrarna i ruralna politika u Srbiji nužnost ubrzanja reformi (pp. 129-147). Novi Sad: DAES – Agrarian Economists Association, University of Novi Sad, Faculty of Economics in Subotica.

Birovljev, J., & Dujić, B. (2004). Proizvodnja zdrave hrane i mogućnosti za povećanje izvoza. Proceedings of the Interntional Scientific Conference on Capital in Agriculture (pp. 217-224). Subotica: Faculty of Economics in Subotica.

Birovljev, J., & Štavljanin, B. (2011). Development of Organic Food Production in European Countries with Comparable Resources. Strategic Management, 16 (3), 23-33.

Birovljev, J., Đokić, N., & Ćetković, B. (2013). Economic effects of investing in conventional and organic agriculture. TTEM (Technics, Technologies, Education, Management), 8 (4), 1914-1920.

Cuvari prirode. (2013). Permakultura. Retrieved September 10, 2013 from Cuvari prirode: http://cuvariprirode.org/index.php?option=com_content&view=category&layout=blog&id=8&Itemid=11

Davčik, N. (2004). Marketing strategija proizvoda u industriji hrane: ekološki pristup. Retrieved January 12, 2014 from http://www.freewebs.com/davcik/Radovi/Marketing%20strategy%20in%20food%20industry.pdf

Fuller, R. J., Norton, L. R., Feber, R. E., Johnson, P. J., Chamberlain, D. E., Joys, A. C., et al. (2005). Benefits of organic farming to biodiversity vary among taxa. Biol Lett, 1 (4), 431-434.

Imanje za uživanje. (2012). Retrieved September 8, 2013 from Zov: http://www.zov.rs/code/navigate.php?Id=199&editionId=101&articleId=531

Lazić, B. (2012). Međuzavisnost organske poljoprivrede i biodiverziteta. In Organska proizvodnja i biodiverzitet (pp. 25-35). Pančevo: Research and Development center Pančevo.

Lazić, B., & Babović, J. (2008). Organska poljoprivreda. Novi Sad: Institute of Field and Vegetable Crops.

Official Gazette of the Republic of Serbia. (2005). National Strategy of Sustainable Development of the Republic of Serbia 55/05. Belgrade: Official Gazette of the Republic of Serbia.

Sep Holcerova knjiga „Permakultura“. (2012). Retrieved September 15, 2013 from Kroz prostor i vreme: http://kpv.rs/?p=2029

Subić, J., Bekić, B., & Jeločnik, M. (2010). Značaj organske poljoprivrede u zaštiti okoline i savremenoj proizvodnji hrane. Škola biznisa (3), 50-56.

The Principles of Permaculture Extend Beyond the Landscape. (2011). Retrieved September 12, 2013 from HABITAT Re-Imagined: http://www.habitatreimagined.com/permaculture/the-princilples-of-permaculture-extend-beyond-the-lanndscape/

Zakić, Z., & Stojanović, Ž. (2008). Ekonomika agrara. Belgrade: Publication centre of the Faculty of Economics in Belgrade.

Correspondence

Jelena Birovljev


E-mail [email protected]

STRATEGIC MANAGEMENT, Vol. 19 (2014), No. 2, pp. 033-040 UDC330.15:330.4 ; 330.112:502/504

Received: July 11, 2013

Accepted: January 24, 2014

Optimization of Economic and Environmental Goals by Multicriteria Analysis Models*

Žarko Popović University of Niš, Faculty of Economics, Serbia Snežana Radukić University of Niš, Faculty of Economics, Serbia

Milica Radović Faculty of Legal and Business Studies, Novi Sad, Serbia

Abstract The main goal of any society is to meet environmental standards with respect to basic economic require-ments, despite all the problems it faces. After solving the major problems concerning the harmonization ofenvironmental and economic goals, these goals could be adequately introduced in a mathematical model. Inrecent years, the economic theory of decision has been devoted to the methods of multi-criteria optimization of these problems. Minimum costs are regarded as an economic objective, and minimum emission as an envi-ronmental objective. In this paper we will emphasize the importance of introducing economic and environ-mental goals in models that deal with this problem. The implementation of successful economic policy isbased on the optimal solutions of environmental modelling. Keywords Optimization, economic goal, environmental goal, multi-criteria analysis, decision making process.

Introduction The concept of sustainable development is a mul-tidimensional concept comprised of economic, social, environmental, technological and ethical components. For this reason, there can be a high level of conflict among the goals of sustainable development. Modern economic literature and practice have confirmed that the conflict between economic growth and environmental protection can be successfully overcome. By introducing en-vironmental objectives in the economic model may result in different methodological problems – from the general problem of competition between economic and environmental objectives, to the

specific problem of formulating environmental objectives in the chosen model.

After solving the major problems concerning the harmonization of environmental and economic objectives, these objectives could be properly in-troduced into the mathematical model. In recent years, economic decision theory has been inten-sively engaged in multi-criteria optimization methods of these problems. Goals can include op-timization of time for performing activities, in-creasing marginal utility of income, risk avoid-ance, tendency toward engaging the workforce and meet the desirable, but not mandatory, restric-tions.

*This article is the result of the research project no.174013 and 44007of the Ministry of Education, Science and Techno logical

Development of the Republic of Serbia.

The economic model of perfect competition market represents a radical simplification of things in relation to how they behave in reality. Due to its extreme simplicity, it may be surprising that this model can still be a way to describe sig-nificant drivers of economic activity and the na-ture of economic institutions (i.e. striving for profit or utility, competition and purchasing power in the market). Also, there is no doubt that this model is too roughly structured for direct ap-plication of economic and environmental policies.

For example, it is obvious that in reality even individual suppliers can sometimes have a signifi-cant impact on the price of the product that they produce. This has important implications for the optimal balance in the market. Even in the ex-treme case of a monopoly, the supplier achieves optimal equilibrium at the point where the mar-ginal costs are below the market price of the product. At the balance point, therefore, the mar-ginal willingness to pay the price of the product and the marginal cost of the product are not iden-tical, so that in this case, the social optimum amount of production cannot be achieved. Simi-larly, the optimality of market equilibrium is dis-turbed by state intervention through tariffs and taxes on certain products, leading to a significant difference between the price paid by consumers and the price received by producers. Here, again, the equilibrium between the marginal willingness to pay the price of the product and the marginal cost of production of the product has not been achieved. The result is a poor allocation of re-sources. Another aspect that is important in real life (and in rather complex economic models) is that the stakeholders do not have enough informa-tion for their activities, according to which they would behave in a way that has already been ex-plained. In general, information (e.g. about prod-uct quality) can be asymmetrically distributed between the supplier and the customer. If the cus-tomer is unable to comply with all the relevant characteristics of the product before buying, poor allocation of resources may appear as a result.

Indeed, the list of differences between real life and the previously mentioned ideal model is long. However, not every item on the list is of interest for each discourse. In this regard, it should be noted that the economic model formed in these specific conditions does not aim to reflect reality. We therefore need to focus on the differences be-tween reality and model that are important for the analysis of environmental problems: the ideal previous presentation (implicitly) assumed that

only the producers and consumers are affected by the production of the product x (plus, of course, the market for suppliers of production factors which are required for its production). Of course, the divergence between the different simple eco-nomic models and the reality can be interacted.

Each cost or benefit effect of the product x is, in the ideal model, transmitted through the opera-tion of market: the benefit of consuming good x goes exclusively to consumers who pay to buy it in its market. The cost of produced goods is ex-clusively incurred by the companies that produce them, and they compensate their costs of produc-tion through market revenues. To produce goods, producers use only those production factors that are purchased in the market of production factors. In the model of commodity x, there are no other relations in the production and sale of good than market relations. This fact can be seen as a drastic simplification, given the current circumstances in reality. In economics, the interdependence be-tween individuals is mediated through the action of the market known as internal effects.

If the market mechanism does not work, one might think that it should be replaced by another mechanism as quickly as possible. However, cau-tion should prevail in such cases. Maybe one can finally show (which is what actually happens) that real allocation mechanism cannot meet the ambi-tious optimality criterion that maximizes net so-cial benefit. If we reject all concepts that do not meet this criterion, then nothing will remain. Con-sequently, literature tends to replace the colloca-tion “market failure” with the collocation “gov-ernment failure”.

1. The principle of consumer sovereignty

According to the concept of economic optimality, the levels of different values (that is, production costs, environmental impact and benefits of con-sumption of goods) play a fundamental role. The central idea in the concept of value is that the base is positive or negative value that is good or bad, and decision makers can make their own assess-ment. The utility of a product for the consumer is estimated in economic model that is based on the consumer’s feeling of utility. The concepts of util-ity (preferences) of decision makers in the econ-omy are taken as a given value. In academic and professional literature, economic theory is an ex-tremely wide (and “biologically” dynamic) field. The subtle difference between (endogenous) pref-erences and (exogenous) meta-preferences is

Žarko Popović et al. Optimization of Economic and Environmental Goals by Multicriteria Analysis Models 35


made by Cooter (1991) or Ebert and Hagen (2002), who distinguish between (exogenous) preferences and (endogenous) affinities.

The process of generating preferences, in par-ticular, their determining in the processes of social interaction and learning, was not analyzed by the “mainstream” economic academic literature, al-though it is undoubtedly of great importance in practice. Moreover, attention should be paid to the fact that the “mainstream” economics is the base of this paper, in order to simplify that individual preferences are associated exclusively with the outcome of the allocation process (and, therefore, especially with the provision of goods). Regarding the ways and means by which the outcome of the allocation takes place, individuals are presumably indifferent. These (and other) limitations do not mean that traditional economic theory is worthless for explaining human behavior, but it cannot ex-plain a significant aspect of the dynamics of hu-man society and therefore can only be a single voice (though very important) in the “polyphonic choir” approach to explanations in social sciences (with special emphasis on the relationship be-tween economic theory and psychology).

In consumer’s evaluation of positive and nega-tive utility, observations of decision makers are essential. They are inevitably selective. However, there is a risk of rejection of the principle of con-sumer sovereignty related to the weak awareness of consumers about the characteristics of the goods and the negative effects of environmental impact. On the other hand, there is the danger of authoritarian solutions. In a democratic society, the assessment of individuals should have a cen-tral role, even though they are not fully informed. According to the fact that there is a significant risk of abuse by “expertocracy”, expert level in-formation must also be assessed sceptical. They can usually see only one particular aspect of a complex and interdependent problems of envi-ronmental policy or economic policy. Although they may, therefore, provide significant contribu-tions to complex social communication process, they have no way to change them. In relation to the role of economics in discussed problems of the level of awareness of consumers, it must be noted that there is significant improvement. Thus, the “information economy” in which the level of awareness of decision-makers is no longer treated as exogenously given, is integrated in the “body” of economic theory. The information process of production and processing is itself treated as an economic problem, based on which the statements

about the optimal equilibrium are possible. These issues are discussed in more detail Varian (2006) and Macho-Stadler and Pérez-Castrillo (2001).

2. Concepts of ordinal and cardinal utility The concept of consumer sovereignty is accepted with reservation (probably due to lack of better alternative), when often faced with new obstacles on the way to define the optimum, which should be achieved by internalization. Even if their as-sessment of usefulness is considered and it is as-sumed that it is crucial for the optimum position, we cannot yet say how it should be measured (conceptual and practical). In modern microeco-nomics, the utility is ordinal, not a cardinal con-cept.

In many areas of application of economic the-ory (and research programs), it is also appropriate to use the concept of utility, according to which they are in a position to choose situations that are appropriate to their level of desirability without the possibility to assess the utility which is done quantitatively or interpersonally comparable. It is necessary to define the socio-economic optimum, for example, the optimal amount of emissions. The claim that the optimal amount of emissions defined by the fact that the marginal cost of reduc-ing emissions and the marginal damages equal means that both quantities can be determined quantitatively in one the same dimension. In addi-tion to the practical difficulties in measuring, it was pointed out to a conceptual problem: envi-ronmental damage and costs of reducing emis-sions entail the loss of utility. Later we will de-termine the utility losses of refraining from the use of resources for alternative (e.g. consumer) purposes (“opportunity costs”). According to the definition of the social optimum approximate value of utility, strictly speaking, cannot be meas-ured as a cardinal, but it may take a willingness to pay (or demand for compensation, respectively) by the relevant decision makers. The demand curve that is used to estimate consumer goods shows, as already explained, nothing other than the relevant consumer’s marginal willingness to pay for a product. Similarly, the marginal damage curve shows the willingness of individuals to pay for damage reduction. The second (related) inter-pretation shows the demand of the injured party to pay for tolerating externalities.

It is important to note that the use of market value, or substitutes derived from market analo-gous procedure, is introduced in the assessment in

36 Žarko Popović et al. Optimization of Economic and Environmental Goals by Multicriteria Analysis Models


addition to preferences, as well as income and assets. Apparently, the “rich” decision-maker is able to manifest a greater willingness to pay on the market than the “poor”. One cannot consider whether it is basically wrong, but instead, each individual assessment should be placed in a social assessment of the same importance. However, it points to the incorrect use of the will to pay as value that implicitly accepts the existing distribu-tion of income.

3. Multi-criteria programming in ecology European urban areas are faced with a number of environmental challenges. Although the scope and intensity of the problems vary, a common set of issues to overcome problems can be identified. The problems primarily include poor air quality, high intensity of traffic and congestion, high noise levels, lack of areas for sport, play and recreation, neglect of the built environment, high levels of greenhouse gas emissions, urban sprawl and gen-erating large amounts of waste and wastewater. These environmental challenges are serious and have a significant impact on the health, environ-mental and economic performances. These prob-lems are caused, in part, to changes in lifestyle, and partly to demographic trends (a growing de-pendence on private cars, increasing of resource use per capita). Environmental problems in cities are particularly complex and interconnected.

Environmental issues that are closely associ-ated with the costs, revenues and benefits have a growing problem with modern companies around the world. Environmental management today in modern society involves very complex processes and procedures that require decision-makers to know the environmental, economic, social and other principles (Morrissey & Brown, 2004) that are relevant to the consideration of all possible problems in ecology.

Multi-criteria optimization is a set of popular methods that are used to solve problems that are based on consideration of more different require-ments, both qualitative and quantitative. One of the requirements may be finding and selecting optimal locations for management of environ-ment, alternative, or its strategy (Chang, Wen, & Chen, 1996; Wen & Lee, 1998; Chang & Wei, 1999, Radukić, Popović, & Stanković, 2012). However, multicriteria analysis has difficulty in solving the problems that include both qualitative and quantitative objectives under consideration. Environmental and economic objectives should be

properly introduced into the mathematical model using the multi-criteria optimization method.

Problem multicriteria programming can be most easily shown in the example of linear pro-gramming with two objectives. If one takes the minimum cost as an economic goal, and minimum imission2 as an environmental goal, and if there are a number of technological and other con-straints, the criterion set of possible solutions, in principle, has the form shown in Figure 1.

Figure 1 The criterion set by two goals (minimum costs and minimum imissions)

Source: Authors

All points in hatched field ABCDEFG and all

points on the border line represent possible solu-tions. The aim of minimal cost is achieved at point D, and the goal of minimal imissions at point A. All points on the line ABCD are effective solutions, i.e. effective compromises. The set of all efficient solutions represent a complete solu-tion of the problem (Zimmermann, 1976, p. 455). The optimal solution, i.e. the optimal compro-mise, is determined on the basis of complete solu-tion using additional criteria. Depending on the applied procedure, Martić and Zimmerman distin-guish the following basic methods for determining the optimal compromise, i.e. the next groups of multicriteria linear models (Martić, 1977; Zimmermann, 1976):

models with valuation (weighting) goals, targeted programming, and interactive methods for seeking an optimal

compromise.

2According to the Law on Environmental Protection of the

Republic of Serbia (Sl. glasnik RS, no.135, 2004) the emission means the release of pollutants or energy from the individual and/or diffuse sources in the environment and its media, while imission means concentration of pollutants materials and energy in the environment which expresses the quality of the environment at a particular time and place.



Methods of the third group were developed for those situations in which the decision-maker’s preferences cannot be formulated in advance, but only on the basis of additional information on possible alternative consequences, obtained in a dialogue with the computer (Martić, 1977).

Zimmerman describes the other group of mod-els as models in which the optimum compromise solution is determined in such a way as to mini-mize the distance from the ideal solution (Zimmermann, 1976, pp. 456-457). The ideal so-lution is presented at the point where all goals reached its optimum level (point I in Figure 1).

At first glance, one can easily get the impres-sion that the goal programming models provide a “purely mathematical” determination of unambi-guous optimal compromise, without the need for any evaluation systems. However, Zimmerman suggests that the use of the parameter “distance” as a criterion of optimality just implies the exis-tence of an appropriate system of preferences (Zimmermann, 1976, p. 457).

4. The formulation of the economic objective - the minimum cost objective According to the academic and professional litera-ture on the optimization of energy structure, some authors take the position that the sum of the cost (which should be minimized) –comprised of the sum of the cost of primary production and trans-formed energy, as well as the cost of transport and distribution – should also be included, preferably, and all the costs to the consumer (Požar, 1977). This position can be justified by the fact that the process of energy does not end in energy man-agement, but that it continues in the sectors of final energy consumption. Energy needs, in fact, are the needs for useful energy, and useful energy is characterised narrowly limited opportunities for transport and storage so, as a rule, it must be pro-duced by the consumer. Therefore, each final con-sumer of primary and transformed energy is also the producer of the useful energy.

As the energy structure of economy should be provided satisfying the overall energy needs, the optimal energy structure will be achieved, in a theoretical sense, in the case when the total social costs of produced useful energy in all sectors of economy are minimal. In addition, the concept of social costs also allows and includes all these costs (valued consumption of manpower and re-sources for operation) which result in non-

productive sectors of economy, for example, in the sectors of general, common and private con-sumption. In this context, one should note the fact that the “social costs”, as a rule, occur in the form of the damage cost and remedial measures that have been largely borne by final consumers, which has a negative impact on individual well-being and standard of living. These costs of the final consumers are indirectly included in the model over the cost of the protective (preventive) measures, which are, in our case, replaced by the cost of damage and remedial measures. The model, therefore, may introduce the useful energy production cost of non-productive sectors of final energy consumption, that is, estimated consump-tion of manpower and resources required for work in households. Similarly, the cost of damage and remedial measures, and labour consumption in the household, as well as the costs of energy installa-tions, also affects the individual well-being and the standard of living. The protective measure in this case is to move the process of useful energy production from the household sector to the en-ergy management, such as, for example, transfer of heat for home heating in private dwellings to district heating plants and boiler facilities. In this case, the operation reduces the consumption in the household, and increases the well-being of the individual. Thus, in the case of production of use-ful heat for space heating, using stoves within households themselves, the costs are large for consumers and should include the cost of pro-curement of fuel, the cost of transportation to the front of an apartment building, transport costs in the basement or storage, transport costs from the basement to the apartment and the removal of ashes. Another group of costs includes invest-ments in the furnace, including the chimney, and the need to increase floor space for accommoda-tion oven and storage of fuel, etc. The problems related to the method of determining these costs will not be discussed in this paper, but it is impor-tant here to emphasize that their introduction into the model, from a theoretical standpoint, is en-tirely justified.

The view that the amount of costs to be in-cluded, if possible, and all costs of consumer, sat-isfies the above conditions for optimal energy structure, by which the optimal energy structure will be achieved in the case of the minimum so-cial cost of useful energy produced in all sectors of the economy. Does this mean that the model should include the cost of useful energy produc-tion of all sectors and industries of the economy?



If we start from the basic economic principle that it consists of the application of the planned target of an organizing system achieved with minimal investment, and if this principle is ap-plied to create a model for optimizing energy structure, then the answer to this question is nega-tive. The corresponding energy (output) model should, in fact, be created with a minimal invest-ment of work and means for obtaining all relevant parameters in the (input) model, which means that we should ignore any parameter for the validity of the model that is not necessary. To find the opti-mal energy structure it is not necessary to intro-duce all the processes and costs of production of useful energy. On the contrary, only one process (with appropriate costs) should be introduced in the model, for which there is a realistic alternative options, in which, therefore, there is a possibility to choose the optimum expression, because the processes are not alternatives and their costs as do not affect the optimization of the process and its outcome. For this reason, we can formulate the following two principles for the optimal structure of the model:

1. The principle of symmetry between the length and volume of a series of the energy costs. The costs incurred by the consumer should be introduced in the model exactly to the extent to which energy arrays include energy processes in the consumer, i.e. the true costs should follow and complement all the processes in the energy bursts.

2. The principle of optimal length of power series. The energy arrays in the model should be extended only to the extent of transformation and transportation of en-ergy, where there is a choice between alter-native processes.

Because of the tight interconnectedness, both

of these principles in the process of modelling the optimal energy structure must always be per-formed together. It follows from their use that energy arrays in the model should not be unneces-sarily extended to the useful energy, if at this stage a range of energy there are no real alterna-tive options, that is, in this case, any extension of power series in the model with unnecessary bur-den on the technical and economic (cost) parame-ters.

Also, when we determining the cost of com-plex economic systems, then there is always a danger that the same costs are calculated repeat-edly. This is especially true for the cost of the en-

ergy bursts, in which the output of the previous process has as input to the next process. The prob-lem to compute the total cost is essentially the same as the problem of determining the gross do-mestic product in the overall economy.3

In a complex system, which needs to be opti-mized, costs add up in such a way as to avoid the duplication of cost elements. For a system which comprises, for example, coal mines, power plants, heating plants and gas works, this actually means that the objective function must not impose the costs of coal consumption and power generation in thermal power plants and heating plants, or the cost of consumption of coal, electricity and ther-mal energy in the gasworks. In order to achieve optimization of complex systems, flows of mate-rial between the various sub-systems should not be evaluated. The latter statement is true both for consumption as raw material for transformation, and the auxiliary energy consumption in all the processes of production, transformation, transpor-tation and distribution of energy. In the multipli-cative energy balance, the processes of transport and distribution are considered as energy proc-esses. This fact should be taken into account in the models of and a target function set in such a way that, when summing up, the cost comes to the small “doubling” of certain cost elements. Ac-cording to this concept, the entire cost (in the form of specific total costs) should be calculated only for the first level of power series, i.e. for primary energy production and imports of energy, as well as the transportation and distribution of energy. For the other energy processes, it is calcu-lated with a certain “net cost”, as follows:

for the production process of transforming energy with (specific) fixed costs of energy installations, and

for the production processes of useful en-ergy by the final consumer with the (spe-cific) fixed costs of installations related to energy process, as well as with the (spe-cific) variable costs for spent workforce (Požar, 1977, p. 31).

3It is known that the gross domestic product is an economic

category, which measures the performance of production in a way that excludes the multiple calculations. However, there is a risk that the intermediate products are calculated at least twice, first to the manufacturer of theraw materials, intermediate products, etc., and second time by the manufacturer of the finished product. Because of determining the results of production, itrequires the calculation of intermediate production of goods that enter the manufacture of other products as raw materials.



The concept of fixed and variable costs which is applicable to the production of useful energy in the final consumer should be definitely applied to all production processes of transforming energy, because auxiliary materials and other elements of production occur in all the processes of transform-ing energy.

According to the invested elements of produc-tion, there are the three major groups of costs: the cost of materials, the cost of operating funds and the labour costs. On the other hand, by the dynam-ics of spending we distinguish between: the fixed costs, the relatively fixed costs, and proportional costs. For the purpose of modelling the structure of the energy, it is sufficient to group the costs in the following manner:

the costs of funds for construction work and technical installations as a fixed cost,

the labour cost and non-energy auxiliary materials4 as variable (i.e. proportional and relatively fixed) costs.

Therefore, these two sets of costs should be

provided so as to produce useful energy, and transformed energy for the production, then esti-mated from the available data.

Finally, it is worth noting that even in the pro-duction of primary energy, and also in the trans-port and distribution of energy, strictly speaking, the full (i.e. specific total) cost should not count, but only the total cost less the value of the auxil-iary consumed energy in these processes. So, in cost of the coal should not include the cost of con-sumed electricity in the coal mine, and in cost of rail transport of coal should not enter the cost of energy used in transportation of coal, so as to avoid duplication of such costs in the target func-tion. However, in practical modelling procedure, the elimination of these costs due to scarce data is very complex, and error greater than the error of “doubling” of costs may be introduced in the model. For this reason, a compromise between the theoretical justification and practical application of this concept should be found in exercising the net-cost concept.

Also, all other objectives are introduced in the model as a target limit. In terms of the logical unity of objectives and measures, the adopted concept of economic and environmental goals determines the range of measures that can be in-

4In complex energy systems, the costs of “energetic material”

(energy as a raw material) and auxiliary power is not introduced into the sum of the total costs.

troduced into the model. The economic objective of minimum costs based on the concept of the cost of the protective (preventive) measures, plus the environmental objectives, are formulated as a maximum allowable emission of pollutants and waste heat. It follows that the model mainly in-cludes safeguards to somehow influence the re-duction of total emissions.

Conclusion The use of mathematical models and methods of optimization in defining sustainable development strategies is imposed as a modern scientific stan-dard. These procedures are an important tool in the process of harmonization of conflicting objec-tives related to modern business and the environ-ment. In this article, the authors describe the op-timization procedure, as well as the main prob-lems and conflicts between economic and envi-ronmental goals and ways to overcome them.

Starting with the most important model for planning energy structure, on one hand, and a general theoretical model of the process of pollu-tion and protection of the environment on the other, the most important goals for the economic and environmental optimization of energy struc-ture of the economy are formulated. There is a general applicability of this methodology, as well as the general theoretical and methodological con-siderations in this paper, such as, for example, a general theoretical model of pollution and protec-tion of the environment, the discussion of the mu-tual relations of the economic and environmental goals, and the manner of their introduction into models of energy and economic development, establishing a logical unity between the appointed objectives and selected measures in the model and so on.

A possible practical application of the model for economic and ecological optimization of en-ergy structure of the economy will depend on, above all, the availability of suitable input data for all the observed processes and regions (data on energy requirements, technical and economic co-efficients, energy processes), among which the most important data related to the processes of pollution and protection of the environment are:

the information on maximum permitted levels of emissions of certain pollutants and waste heat for each type of pollution and each region based on the maximum al-lowable imissions, as well as a transmis-sion characteristics of each region,



the information on the technical character-istics and the specific costs of the all pro-tective (preventive) measures in the model,

the information about specific programs of energy processes, and

the data on emissions of non-energy proc-esses in each region.

Some of these data are difficult to determine for various reasons, such as, for example the dif-ferent meteorological, climatic and geographic conditions in each region. However, in the long run, each region will have to have such data in their own interest, in order to implement effective local environmental policies.

In line with global trends, the use of quantita-tive optimization methods in defining a sustain-able development strategy in Republic of Serbia is limited. In fact, only a few studies dealing with this issue. On the other hand, the implementation of a strategy for sustainable development in Re-public of Serbia is still more or less a political issue and a matter of a political consensus.

This article presents a theoretical basis for the application of multi-criteria programming for solving environmental problems. It also indicates the possibility of introducing environmental tar-gets in models of multi-criteria analysis. So, the intention of the authors is to pay attention to the scientific approach in defining strategies and poli-cies for sustainable development. SM

References Chang, N. B., & Wei, Y. L. (1999). Strategic planning of

recycling drop-off stations and collection network by multiobjective programming. Environmental Management, 24 (2), 247–263.

Chang, N. B., Wen, C. G., & Chen, Y. L. (1996). A grey fuzzy multi-objective programming approach for the optimal planning of a reservoir watershed: B. Application. Water Research, 30 (10), 2335– 2340.

Cooter, R. (1991). Lapses, conflict and akrasia in torts and crimes. International Review of Lay and Economics, 11 (3), 149-164.

Ebert, U., & von dem Hagen, O. (2002). Exogenous preferences and endogenous tastes. Jahrbucher fur Nationalokonomie und Statistik, 47, 270-283.

Macho-Stadler, I., & Perez-Castillo, J. D. (2001). An introduction to the economics of information. Oxford: Оxford University Press.

Martić, L. (1997). Primjena matematičkih metoda u ekonomskoj analizi. Zagreb: Informator.

Morrissey, A. J., & Browne, J. (2004). Waste management models and their application to sustainable waste management. Waste Management, 24 (3), 297–308.

Požar, H. (1977). Pristup određivanju optimalne opskrbe gradova energijom. Paper presented at the Stručni skup IV međunarodnog sajma opreme za gradove „URBANEX“ u Zagrebu, Beograd.

Radukić, S., Popović, Ž., & Stanković, J. (2012). Тhe goals and limitations of multicriteria models of environmental protection. Economic themes (4), 669-681.

Varian, H. R. (2006). Intermediate microeconomics – A modern approach. New York: W. W. Norton & Company Inc.

Wen, C. G., & Lee, C. S. (1998). A neural network approach to multi-objective optimization for water quality management in a river basin. Water Resources Research, 34 (3), 427–436.

Zimmermann, H. J. (1976). Optimale Entscheidungen bei mehreren Zielkriterien. Zeitschrift für Organisation 45, 455-460.

Correspondence

Žarko Popović

Faculty of Economics, Niš Trg kralja Aleksandra 11, 18000, Niš, Serbia


STRATEGIC MANAGEMENT, Vol. 19 (2014), No. 2, pp. 041-046 UDC 005:339.137.2



The Role of the Marketing Aspects of Market Integration in Achieving Competitiveness

Aleksandar Grubor University of Novi Sad, Faculty of Economics in Subotica, Serbia

Abstract A crucial characteristic of the modern-day world economy is global economic disbalance. Whereas the devel-oped segment of the global economy, with its overall and particular interests, diverges on the one side, theremainder of the global economy remains of the other. The shifts noted over the past three decades have re-sulted in differences in the global economic leadership, and the pivotal points of such leadership. In such cir-cumstances, transition countries should promote mutual conditioning of national economies with the trends ofglobal market integration, as this is the basis of sustainable economic prosperity and enhancing their owncompetitiveness, as testified by the positive experiences of the economically most prosperous countries suchas Switzerland, Japan, South Korea, Singapore etc. The relatively small countries (including Serbia), lacking particularly noteworthy available resources, with theorientation to workforce training and qualification, as well as active incorporation into international market inte-grations, have the opportunity to attain the key factor of economic success, which is increasingly shifting to-wards the market. The shortage of traditional resources, especially natural resources, can be successfullysubstituted with market expansion, as those who have larger markets in the 21st century will also have larger production. The globalisation process has been acting as a catalyst in the international market integration. The increas-ingly apparent market integration has resulted in the growth in the off-shore financial market, mergers and acquisitions, and the global restructuring of entire industries, which has further reflected on enhanced interna-tional competitiveness. In addition, the global homogenisation of the consumers’ needs, that is, equating theexpectations and standards for products in international exchange bring into the foreground the role of market-ing aspects of market integration in global competitiveness. Keywords Marketing, market integration, competitiveness.

Introduction

As well as several significant economic phenom-ena keeping pace with the development of the globalisation process and overall market integra-tion, the world economy has undergone signifi-cant radical over the past three decades. This par-ticularly refers to relocating the mainstream in-dustrial production from Western Europe and North America to East and Southeast Asia. In ad-dition, regional economic integration has been strengthened by the regulation and institutionali-sation of trade and financial flows, where the

value of international commerce transactions, where the value of international trade transactions remarkably exceeds the value of the total global production, which clearly indicates that the sources of economic growth in modern-day global economy are increasingly shifting in favour of active involvement in the global market. Interna-tional companies have become the principal enti-ties in international exchange, headed by superior cooperation, which have lead to a high degree of individualisation in international trade and high-lighting the significance of international competi-tiveness, because international exchange is no

42 Aleksandar Grubor The Role of the Marketing Aspects of Market Integration in Achieving Competitiveness


longer predominantly a macroeconomic phe-nomenon.

The global extension of market integration has resulted in the establishment of the key factors of sustainable competitive advantage in terms of technological and marketing aspects, both through individual innovation of the production process and through encouraging the organisational and technological enhancement with appropriate deci-sion making on the business and macroeconomic level. The predominant opinion in the reference marketing literature is that the key change in the marketing aspects of market integration is shift in the emphasis from the macroeconomic to micro-economic level of decision making, that is, func-tional connection of market-related integration and competitiveness.

1. Contemporary market integration The modern-day market integration was preceded by a significant growth in the level of interna-tional exchange of goods and services, and the values reached by this exchange. This growth emerged as a consequence of the following trends and tendencies (Jović, 2006, p. 70):

general liberalisation of international trade with an increasing homogenisation of in-ternational competition:

intensified international mobility of knowl-edge and capital, especially direct invest-ment of the international private sector.

the growing effects of regional economic integration;

the shift of the pivotal point of the global economic cycles from internal to external demand;

strengthening the role of internationally oriented companies as the main holders and subjects of contemporary exchange of goods and services.

Developing various forms of market integra-tion, that is, strengthening economic and business relations reflects significantly on the operative activities of internationally oriented enterprises on the selected segments of the global market. Such market relations appear in various modalities, and signify strengthening and commercial relation-ships accompanied by gaining mutual benefits.

The traditional logic of market integration was based on using potentials and benefits of a large market, while contemporary circumstances are increasingly characterised by specialisation and development of the marketing aspects of global

competitive advantage. In parallel with the liber-alisation of the exchange of commodities, ser-vices, knowledge and investment, advances in the market integration expand the fundaments and forms of business cooperation of internationally integrated companies, bearing in mind the mod-ern-day possibilities for fragmenting both produc-tion and other business functions. Viewed mac-roeconomically, the global economic interdepend-ence also leads countries to deepen their economic relationships, for only in this way can the total economic activities be directed and developed appropriately.

Market integration has undergone a long evo-lution. Historically, four forms of market, i.e. economic integration can be distinguished: free trade zones, customs unions, common market, and economic union. A free trade zone is the initial form of international market integration, and the best known example from recent past was EFTA, which has lost its significance due to full mem-bership of Austria, Sweden and Finland in the European union.

A customs union is a form of higher-intensity market integration, which, as a transitional form between a free trade zone and common market, does not exist in its literal sense in the contempo-rary world economy. In addition, customs duties are increasingly losing significance as a form of protection of foreign trade, whereas classical for-eign trade transactions are being combined or re-placed by other modes of entry into the world market. A well know example is the customs un-ion of Belgium, Holland and Luxemburg in the period from 1921 until full EU membership.

Common market refers to integration, which creates prerequisites for free mobility of capital and labour between member countries, and hence, free trade in commodities and services. The best known and probably most successful example of common market was the European Economic Community until 1992. In addition to the Euro-pean common market, there are attempts at such integration of Latin American, Arab and African countries (CACM, LAIA, CARICOM, ANDEAN, ECOWAS, ACM, etc.). In essence, these integra-tions are closer to a form of creating regional con-nections, being burdened by the problems of over-lapping export orientation, insufficient political consensus, or better to say, trust.

Economic union is the highest form of integra-tion of member countries, which also includes harmonising mutual economic policies, together with the policies of industrial and regional devel-

Aleksandar Grubor The Role of the Marketing Aspects of Market Integration in Achieving Competitiveness 43


opment. Such integration results in the formation of supranational, establishment of monetary union and common policies in many areas, starting from agriculture and social policies to enhancing com-petitiveness. The EEC has grown into such a un-ion, as an entity of homogenous economy, with the idea of a single currency, unified fiscal and monetary policies.

The contemporary economic relations also in-clude non-conventional forms of market integra-tion, resulting in various examples of market-based association of modern countries, even asso-ciations of different market integrations. For in-stance, 1989 saw the inception of the APEC (Asia Pacific Economic Cooperation) as a regional inte-gration for improving economic cooperation, and the effects of the association were adjusted to-wards forming an Asian-Pacific economic com-munity. Thus conceived, the APEC features as a market integration of the Eastern hemisphere with the aim of eliminating trade and investment barri-ers by 2020. It is interesting to note that the APEC gathers countries previously integrated in ASEAN and NAFTA, as well as other globally significant economies.

The contemporary market integration signifi-cantly extends the impact of marketing aspects in researching, planning and achieving competitive-ness of internationally oriented companies, bear-ing in mind the potential and dimensions of a large market in implementing business strategies on a spacious geographic basis. In addition, the marketing implications of market integrations are also concerned with harmonising business-related and legal requirements as regards individual mar-keting mix, a common currency facilitating price comparison between countries, and encouraging economic development that should result in an increased number of solvent customers (Keegan, 2002, p. 50).

2. International competitiveness Market integration is functionally linked with achieving international competitiveness. Under-standing a company’s international competitive-ness requires an analysis of macro, meso and mi-cro level of competitiveness in a broader perspec-tive. A three-phase model (Hollensen, 2011, p. 104) was developed for the purpose of understanding this relationship:

analysis of national competitiveness, i.e. Porter’s diamond – the macro level

analysis of competition within an industry, i.e. Porter’s five forces – the meso level, and

value chain analysis – the micro level.

This model refers to individual competitive-ness and competition and time-based competition. The factors influencing companies’ individual ability to achieve international competitiveness include internal abilities, skills, motivation and invested effort (Veliyath & Zahra, 2000). In the traditional approach to decision making, uncer-tainty leads managers to search more additional information based on which they will raise the level of certainty in decision-making. Managers, however, can increase competitiveness by using tactics that accelerate the analysis of gathered in-formation and alternatives during the business decision making process (Kedia, Nordtvedt, & Perez, 2002). In this manner, competitiveness is achieved by simultaneous evaluation of various alternatives, and comparison with the traditional approach to decision making indicates accelerated analysis of strengths and weaknesses of individual options.

The growing effects of market integration and operating under the conditions of globalisation have resulted in developing the concept of critical competitiveness (Rakita, 2009, p. 443). The glob-alisation process has led to changes in the nature of competition. Essentially, global competitors have grown in terms of size and market domi-nance, because, apart from having resources at their disposal on a global level, they also achieve competitiveness on the global market. A relatively small group of multinational companies, or their networks, achieve domination in many activities.

The aggressive behaviour of global competi-tors is also increasingly manifest, as indicated by the growing number of aggressive measures taken by direct competitors. The earlier rules of loyal competitions are increasingly becoming a part of the past. In addition, competition on integrated markets exceeds the limits of the same industry, for the new competitors can be basically con-nected to some other industries. The traditional competitive analyses have therefore become im-precise and inappropriate.

It is also interesting that the new competition increasingly occurs between strategic alliances and business networks. Shortened lifecycles of products leads to temporary or project-based company networking, so that independent compe-tition is surrendering its place to competition be-tween networks. Finally, the global competitors



have also become a significant political factor, for their strategic developmental importance results in domicile states supporting them either directly or indirectly.

The essential issue of international competi-tiveness is how contemporary market oriented companies should construct their attitude to global competitiveness. It must be borne in mind that there is no generally accepted answer to such a question. International competitiveness in the 21st century will be achieved by combining new abili-ties that will result in superior business qualifica-tions of particular companies in comparison to their competitors. This, above all, refers to ex-pressed innovativeness in technological, produc-tion-related and marketing-related sense.

The contemporary international competition highlights the recurrent practice of extreme situa-tions, because global market domination has re-sulted in hyper-competition, with the simultane-ously occurring increasing fragmentation and growing competitive specialisation. Global com-petitors tend to find new ways of adding value to their offer.

Global competitiveness results from a strategic approach stemming from the fact that it is essen-tial to create future competitive advantage more efficiently than the competitors can reach the ex-isting competitive advantage. By its strategic ap-proach, the company opts for the best way of achieving long-term competitive advantage, de-veloping its own knowledge and skills. In accor-dance with global integration, a company also opts for different modalities of market participa-tion.

Glo

bal c

oord

inat

ion/

inte

grat

ion

forc

es

Figure 1 Global integration and market participation Source: Hollensen, 2011, p. 22

The concept of critical competitiveness, i.e.

critical success zone, is based on the minimum

size and efficiency levels required for achieving and maintaining the adequate market position. Regarded as the fundamental criterion of business success on the national market, with regards to the selection principle, such a concept was earlier known in national marketing as the critical suc-cess zone concept. It must be borne in mind that the critical success zone is always defined in rela-tion to competition and the standards of the target market, rather than being an absolute category.

The critical zone of international competitive-ness links two distinctive and interdependent cri-teria of market success: the differential advantage and the economies of scale. Achieving interna-tional competitive advantage, therefore, means that a company creates an optimum international marketing programme, and achieves the effects of the economy of scale.

Critical competitiveness, in essence, features as the zone of successful market participation, which is why it is necessary to know the criteria for the peak and threshold of critical competitive-ness. The critical competitiveness threshold refers to investment required for achieving advantage in relation to international competitor and achieving the appropriate market position. The critical com-petitiveness peak refers to achieving the leading market position, both in terms of market participa-tion and the achieved business performance.

Market orientation in operations on the inte-grated market is prominent in the critical competi-tiveness concept, by means of considering the existence and developing the company’s differen-tial advantage, which means that the differential advantage is both the determinant and the objec-tive of the international marketing strategy, How-ever, the differential advantage is not an advan-tage by itself, as it primarily refers to advantage in combining marketing mix instruments in relation to competitors. The achieved differential advan-tage is a realistic guarantee of positive business results on the integrated market.

3. Creating marketing strategies on the integrated market Creating marketing strategies on the integrated market begins by choosing the competitive strat-egy, determined by the current and future target markets. Generally, in doing business on the con-temporary integrated market, marketing managers have three possible options for choosing a strategy (Porter, 1998):

Aleksandar Grubor The Role of the Marketing Aspects of Market Integration in Achieving Competitiveness 45


cost leadership, differentiation, and focussing. The focussing strategy is characteristic of

business operations on a single market segment, where orientation may turn to cost cutting or dif-ferentiation. Each of the three strategies can be applied both on the global and the regional mar-ket, and marketing managers can also combine strategies depending on the characteristics of the market and the product.

As regards leadership strategy on the inte-grated market, the essence is offering identical products at a lower price than the competitors. Cost leadership is often preceded by investment in economies of scale, and implies a strict control of total costs, including research and development costs, and marketing logistics costs.

Differentiation may be focussed on a single market segment, but it can also be applied on the market of the entire industry. In marketing prac-tice, marketing differentiation may be real or ap-parent. In any case, differentiation should be no-ticeable to consumers, regardless of whether it is related to low prices, design elements, or after-sale service. When creating marketing strategies on the integrated market, the most frequent com-bination is differentiation with cost cutting, for this facilitates market penetration and increases market share

Figure 2 Marketing strategies Source: Porter, 1998

Developing market strategies on the integrated

market does not mean that companies must serve the entire integrated market. Given the resources at their disposal, and the set marketing goals, eve-ry company decides on the extent of market par-ticipation on the integrated market. Various ap-proaches are used on the integrated market, and companies often begin grouping the market by several criteria. In addition, various portfolio

models are used, due to observed positive analyti-cal characteristics.

Finally, when creating marketing strategies on the integrated market, companies make decisions based on market appeal and expected market posi-tion. It must be borne in mind that marketing ex-pansion on the integrated market determines re-source allocation by individual target segments. The basic alternatives in this sense are (Czinkota, Ronkainen, & Zvobgo, 2011, p. 174):

concentration on a small number of mar-kets and

diversification through growth on a com-paratively large number of markets.

When deciding on the expansion strategy, it is necessary to consider the market’s specific fea-tures (such as growth rate, price stability, demand price elasticity of demand, etc.), marketing pro-gramme (competitiveness, need to adapt the prod-uct, market communication adjustment, econo-mies of scale in distribution, etc.,) and the relevant factors controlled by the company management.

Conclusion Achieving competitiveness on the integrated mar-ket entails facing intensive competition of domes-tic and global brands, resulting in rising marketing costs and drop in corporate profits. In addition, competition on the integrated market includes all the existing and potential offers of competitors, and the offer of substitution products and services, which meet the same consumer needs, but in a different way.

Competitors on the integrated market meet the needs of large market segments, parry each other directly, confronting each other while gaining adequate market share, which all results in re-duced profit of all market participants. As the market growth slows down in such circumstances, it is further divided into smaller segments, which corresponds the market fragmentation process, as a process parallel to its integration.

Just like fragmentation is accompanied by market integration, market consolidation is ac-companied by its fragmentation. Market consoli-dation is the result of appearance of a new attrib-ute, characterised by a high degree of appeal. Such a situation favours the expansion of certain areas of the integrated market. It must be borne in mind that the state of market consolidation is not a permanent feature of the contemporary integrated market either, given that it is mostly fluctuating between fragmentation and consolidation. SM



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Correspondence

Aleksandar Grubor



STRATEGIC MANAGEMENT, Vol. 19 (2014), No. 2, pp. 047-055 UDC 339.138:004.738.5



Who Has the Power in Digital Marketing: Customer or Content?

Beba Rakic Graduate School of Business Studies, Serbia Mira Rakic Graduate School of Business Studies, Serbia

Abstract The literature in the field of marketing is based on customer orientation, which implies that “customer is king”.The development of digital media influenced the increase in the significance of digital content; so it is empha-sized in digital marketing that “content is king” as well. The same content can have different meanings in dif-ferent contexts, so “context is king” as well. The purpose of this paper is to investigate who the king is in digitalenvironment: customer or digital content. The findings suggest that there is a need to create customer and community-driven digital content in real-time. In a digital landscape, digital content can be a competitive advantage. In a digital environment, both the cus-tomers and the content are essential, i.e. for customers, the continual creating and updating of digital contentin compliance with the context is needed. The paper points out the problem and causes of digital marketing myopia. Digital customer orientation and theintegration of online and offline content are required to avoid digital marketing myopia, the digitalisation ofmarketing activities. The paper promotes the significance of creating, updating and the promotion of valuabledigital content for digital customers/communities. Quality content presents a great opportunity for two-way communication with customers and community, electronic-word-of-mouth (eWOM), user generated content (UGC) and inbound links in real-time. Keywords Digital environment, digital marketing, digital customer, digital content, context.

Introduction Changes in technological environment – the de-velopment of information-communication tech-nologies (ICT) and changes in customer behav-iour influence the changes in the field of market-ing as well. Digital environment, economy, tech-nologies and the process of digitalisation in gen-eral require changes in marketing practice, i.e. the digitalisation of marketing activities and market-ing literature, through surveys in the field of digi-tal marketing. The aforementioned does not mean the complete replacement of classic digital activi-ties. It means that digital activities are added to current classic activities, i.e. that the choice of mix of classic and digital marketing activities is needed. The choice of combination of classic and digital activities depends on customers (capabili-

ties and readiness to use certain digital technolo-gies) and possibilities of organisations. In a digital environment, for a digital customer, quality con-tent in real-time is necessary.

It is pointed out in marketing literature that “customer is king”. The process of digitalisation influenced the “appearance of new king”, i.e. lit-erature in the field of digital marketing points out that “content is king”. Quality content presents a great opportunity for two-way communication with customers and community, electronic-word-of-mouth (eWOM), user generated content (UGC) and inbound links in real-time. The same content in different context can have different influence on customers and search engines, so that “context is king”. Taking it into account, the aim of this paper is to answer the following main survey question (RQ):

48 Beba Rakic et al. Who Has the Power in Digital Marketing: Customer or Content?


RQ1: Who is the king in digital environ-ment: customer or content (in the context)?

Other RQs are stated at theoretical founda-tions.

The starting point in the survey was the atti-tude that content is created for specified context, so that the content and context are observed to-gether.

1. Theoretical foundations and research questions 1.1. The power of customers - “Customer is King” “Marketing is the whole business seen from the point of view of its final result, that is from the customer’s point of view.” Peter Drucker (Dar-roch 2009, p. 10). Customer orientation and phrase “customer is king” has become a key con-struct in the marketing literature – textbooks (e.g. Kotler & Keller, 2006; Perreault & McCarthy, 2002), papers (e.g. Ajay & Jaworski 1990; Blocker, Flint, Myers, & Slater, 2011; Homburg, Muller & Klarmann 2011; Fiala, 2012; Horobet & Belascu 2012; Levit, 1960; Narver & Stanley 1990; Wong, Wilkinson, & Young, 2010) and for practitioners (e.g. Bartholomew, 2002; Bowen, 2011; Grewal, Johnson, & Sarker, 2007; Karof-sky, 2012; King 2012).

Although a lot is written about customer orien-tation and significance of customers,as Levitt em-phasized back in 1960 in his article: “Marketing myopia”, product orientation has been applied a lot in practice, rather than customer orientation.

Non-comprehension of digital media power in-fluences digital marketing myopia. The reasons of digital marketing myopia are:

non-digitalisation ofmarketing activities – non-comprehension of significance of changes in digital environment,

non-implementation of digital customer orientation – the focus being solely on tra-ditional customers, and focus on digital content without perception of requirements and interests of digital customer,

non-integration of online and offline con-tent – an organisation should not send dif-ferent messages across different channels and confuse customers, who have no time for “interpretation of messages”,

a gap between digital marketing theory and practice.

One of potential causes of digital marketing myopia is being surveyed in this paper – the focus on digital content without the perception of re-quirements and interests of digital customer.

Kotler and Keller (2006) differentiate between five concepts under which organisations have conducted marketing activities - production, the product, selling, marketing and holistic marketing concept. Holistic marketing recognizes that “eve-rything matters” with marketing. The four com-ponents of holistic marketing are relationship, integrated, internal and social responsibility mar-keting.

The customer is king means customer relation-ship management – CRM (Bartholomew, 2002), customer care (King, 2012), customer service (Mehok, 2010), ‘24/7 service on demand,’ (Bo-wen, 2011) etc.

“The customer is always right”, even when he is not, because “a happy customer will tell one or two friends about their experience; an unhappy customer will tell everyone they know” (Mehok, 2010, p. 37).

CRM is required for long-term relations with customers. “The customer is king. It’s not about a sprint, it’s a marathon. Our theory is that 90% of the customers want to do the right thing and you have a great working relationship with them”,emphasizes Ernie Boch Jr., vice-president of Boch Enterprises (Karofsky, 2003).

For Nikki King Obe – the customer is king, which means making an organisation customer facing and improving customer care. The keyword is care. However, not only care for customers, but also for employees. If employees are not happy and fulfilled, they will never delight customers. “Also, a customer must be delighted very quickly and his problem solved speedily”. The creation of culture in which all employees comprehend and accept that “customer is king” is necessary. “The process is easy but the culture is really difficult” (King, 2012).

For Chips Co. (a small, high-tech engineering firm), “the idea that ‘customer is king’ became firmly instilled in the employees’ mindsets. Chips Co. managers’ analysis revealed that among the primary needs was a tangible demonstration to customers that Chips Co. was ‘empathetic to their needs, and their need is to cost down’, and Chips Co. was ‘going to do what we can’” (Grewal et al. 2007, p. 409).

For President of Blacklands Railroad – Wayne Defebaugh, the corollary is: Think “customer.” “Services is our biggest asset, and our slogan is

Beba Rakic et al. Who Has the Power in Digital Marketing: Customer or Content? 49


‘24/7 service on demand,’“ Defebaugh says. “That means if a customer has a need that we can help with, we will do it. ‘Service on demand’ means we stay in constant contact with all of our customers via our office, cell phones, or Internet, etc.” he says (Bowen, 2011).

In five-star hotels in India, the mantra is “the customer is not king, the customer is god” (Wahhab, 2012).

On the other hand, it is pointed out in literature that all customers do not have equal importance for operating of an organisation and that organisa-tion should focus on profitable customers. Smith (2000) points out that only some customers are kings. According to 80:20 principle, 20 percent of customers are profitable, i.e. generate revenue and profit. “Some customers are simply too difficult or too costly to keep, and on reflection, should be fired” (Smith, 2000, p. 2).

Two paradoxes describe the economy at the beginning of the 21st century. Consumers have more choices that contribute to lower satisfaction. Top management has more strategic options that contribute to a lower value. What is stated en-courages reconsideration of the traditional value system. Leaders need new frames of reference for value creation. The solution is a concept of co-creating a unique value with customers. Thanks to the Internet, consumers can connect and engage in active dialogue with manufacturers of prod-ucts/services. Instead of producers, consumers initiate and control the dialogue with producers. The market becomes a forum where consumers play an active role in creating the value. An im-portant feature of the new market is that consum-ers are becoming a new source of competence for the organisation. Competence of consumers de-pends on their knowledge and skills, willingness to learn and experiment, and the ability to partici-pate in an active dialogue. Given the new role of consumers, competence is a function of the col-lective knowledge available in the entire system, i.e. expanded network made up of consumers, the traditional suppliers, manufacturers, investors and other business partners. The role of consumers is changing. Organisations can no longer act autonomously, design products, develop manufac-turing processes, determine pricing, create mar-keting messages and control the distribution channels without the affect of the consumers. Consumers tend to affect every part of the busi-ness system. Trained with new tools and dissatis-fied with the existing choices, consumers want to influence and participate in the co-creation of

value with the organisation. Interaction is the ba-sis of a new system of co-creation of the unique value (Prahalad & Krishnan, 2008; Prahalad & Ramaswamy, 2000; Prahalad & Ramaswamy, 2004).

Nowadays, digital technologies and media give power to customers. The development of digital technologies influences the changes in cus-tomer behaviour. From the aspect of organisa-tions, key challenges in the field of customer be-haviour in digital environment are: abundance, possibilities to connect with other customers, greater awareness, mobility and influence on or-ganisations’ operating. Figure 1 shows five key sources of customers’ power. The result is a great potential of informed and connected digital con-sumers. Firstly, there is a large number of digital-ised consumers. Secondly, digital technologies allow consumers to connect themselves mutually through social media (social networks, blogs etc.) in the first place, but in other ways as well, to ex-change information and experiences and make an impact on organisations, events, persons etc. re-gardless of geographic or physical location. Thirdly, consumers find information fast and eas-ily, they can follow up actual events (“live stream”), compare information and make better decisions. In the fourth place, wireless and mobile devices create mobile consumers, i.e. enable a consumer to be available constantly and every-where, which is the most important for a con-sumer if he wishes to be available. In the fifth place, the result of power in the field of informa-tion, mobility and connectivity of consumers is an overall market power. Numerous, connected, in-formed, educated and interested in influence, con-sumers can have greater power compared to or-ganisations. However, on the one hand, consum-ers often are not conscious of their power – poten-tial, and on the other, initiators are needed – lead-ers who will initiate and encourage consumers to certain activities.

Figure 1 Sources of customers’ power

Source: Authors

Zureik and Mowshowitz (2005) pointed out

the power of consumer in the digital society, based on the survey of Internet’s role in the politi-



cisation of consumers and consumption. “The potential power of consumers is very great, and computer-communications technology offers the means to help realize that potential. Many politi-cal actions have been launched by consumer groups in recent years, among them attacks on the practice of multionalcorporatins” (Zureik & Mowshowitz, 2005, p. 48).

In the attention economy, organisations have to struggle not only for loyalty, but also for cus-tomer attention. A great number of traditional and digital media, the struggle of an individual for survival in the period of economic crisis and/or a decision to invest time in other activities means that organisations are struggling among them-selves both for time and the attention of custom-ers. “Attention should no longer be viewed as a commodity, but as a scarce economic resource. This is because we are witnessing a fundamental shift in the way people value and allocate their time” (Berman & McClellan, 2012, p. 28) and that all endeavour to “attract theking to themselves”.

Respondents who answered to RQ1 that “cus-tomer is king” were asked the following RQs:

RQ2: Why is customer king? RQ3: Why is content not king? RQ4: If customer is king, what does that

mean for you?

1.2. The power of content - “Content is King” In 1996, Microsoft’s Chairman, Bill Gates, wrote an article entitled “Content is King” and the phrase has now become a mantra in the Internet world (Cousins, 2012). Since then, it has been pointed out in numerous papers that “content is king” (Cousins, 2012; Handley, 2012; SpringCM, 2012, etc.). Beside this statement, it is pointed out that content is marketing currency (Albee, 2010); free magnet to capture more leads online (Infu-sionsoft, 2011a); that content requires the new marketing equation, because “due to shifts in con-sumer attention, companies are challenged to move beyond episodic, short duration ‘push’ campaign initiatives into longer-term, often con-tinual ‘pull’ content marketing initiatives that re-quire new strategic approaches” (Lieb, Kichner, & Szymanski, 2012, p. 6) and that “magnetic content represents a departure from the classic interrup-tion model of advertising” (Verna, 2012, p. 2). Oliver Newton (according to Verna, 2012, p. 8) emphasizes that: “The ad is yesterday. Content is the future.” “Magnetic content is designed to sup-

plement rather than replace offline and online ad-vertising. Ideally, the content should engage cus-tomers in ways that conventional ads cannot, thereby fostering loyalty and enhancing brand value” (Verna 2012, p.8) etc.

“Content marketing is the creation and sharing of content for the purpose of promoting a product or service” (Marketo, 2010, p. 1). Altimeter (ac-cording to Lieb et al., 2012, p. 6) defines content marketing as the following: “Content marketing is a term that refers to the creation and sharing of content for marketing purposes. In digital chan-nels, it refers to content that resides on properties the brand or marketer owns (e.g., a website) or largely controls from a content perspective (social media channels, syndication). Content marketing differs from advertising in that, unlike advertising, a media buy is never part of the equation”. Types of content are: articles, blog posts, books/ebooks, brochures/manuals, case studies, e-mail, images, information guides, microsites/web pages, online courses, podcasts/videocasts, presentations, press releases, product data sheets, reference guides, resource libraries, RSS/XML Feeds, videos, we-binars/webcasts, white papers, widgets, work-books (Marketo, 2010), reports, Tweets and Face-book posts, etc.

The benefits of content marketing are addi-tionally confirmed by the following data. Accord-ing to a Roper Public Affairs study, 80% of busi-ness decision makers prefer to get information from the companies they buy products or services from in a series of articles rather than an adver-tisement (80% prefer articles, 20% prefer ads) (Infusionsoft, 2011b: 2). Apart from the afore-mentioned, content marketing allows prospects to visit website of an organisation, contrary to clas-sic ads by which activity prospects are interrupted (Infusionsoft, 2011b). “We’re entering an era of reciprocity. We now have to engage people in a way that’s useful or helpful to their lives… To put it another way: How can we exchange value in-stead of just sending a message?” (Jim Lecinski, according to SpringCM, 2012).

The significance of content is perfectly pre-sented by attitudes of a practitioner. Sheridan is one of the three owners of River Pools and Spas, which installs swimming pools and hot tubs throughout Maryland and Virginia. “I used to see my company as a ‘pool company’. Today, I see my business as a content marketing company. My entire goal is to give more valuable, helpful and remarkable content to consumers than anyone else in my field, which will in turn lead to more sales”.



Sheridan views content as a competitive advan-tage that expands and deepens his relationships with would-be customers (Handley, 2012, p. 52). Why is content still king? According to Handley (2012) reasons are: the right mix attracts search engines, generates page views – and turns brows-ers into buyers. Chairman and CEO of Viacom Sumner Redstone once announced the motto of its transnational empire as “content is king” (Fung, 2006).

Authors emphasize the quality of content (Cola & Prario, 2012; Croft, 2008). Croft (2008) poses the question: Why is quality content king? Today, with the explosion in internet use world-wide and the huge volume of information that is being added to the Web on a daily basis, quality is even more important. Users equate quality with relevance. They get annoyed when they get results that are, as far as they are concerned, irrelevant and time-wasting (Croft, 2008). “Ultimately, qual-ity, and quality content, is king” (Cola & Prario, 2012, p. 192).

Latendre (2012) points out that the content still rules, but context is now king. “Content is stored in one system and communication occurs in an-other” (Latendre, 2012, p. 7), so that the same content in different context can be differently per-ceived. Content, taken out of context, is dimin-ished. Information, in order to really add value, requires context – so say John Seely Brown and Paul Duguid, authors of The Social Life of Infor-mation (Belle, 2011). Boyle and Whannel (2010) pointed out to the significance of medium for the transfer of content. Fung (2006) highlighted the problem of local adaptation of content. Context is presenting, at a right time, the most relevant con-tent to each unique visitor based on the informa-tion an organisation knows about them to ensure they take the desired next step. When combining content and context, an organisation can start de-livering experiences to visitors across all of the channels they use to connect with an organisation (Ektron, 2012a). Taking into account that custom-ers differ, the same content is not suitable to eve-rybody, so that personalisation and content target-ing are required (Ektron, 2012b). As a conse-quence, integrated perception of content and con-text is essential.

Content is still king. It is core building block of websites, email campaigns, mobile devices, and earned media. It comes in many forms and being able to manage content is an important mission for any organisation. Web content management empowers content authors to be more effective at

publishing content to each digital channel (Ektron, 2012a).

The challenges in content creation are: the creation of content that engages audiences, crea-tion engaging content that keeps social audience active, producing enough content, content that will generate leads and sales, content that estab-lishes thought leadership creating a variety of con-tent (Brafton, 2012).

Respondents who answered to RQ1 that “con-tent is king”, were asked the following RQs:

RQ2: Why iscontent king? RQ3: Why is customer not king? RQ4: If content is king, what does that

mean for you? For creating and updating quality digital con-

tent, changes in organisation are required. Digital mindset, culture and staff are required as well. According to Lieb et al. (2012, p. 3) content mar-keting requires a shift in company culture, re-sources, budgets, partners, and strategy. Rebalanc-ing is critical to achieve these goals. The choice is whether to rebalance now or wait until later, when the battle for attention may become even more difficult than it is today.

2. Method Using telephone interviewing, this survey en-deavouredto answer the question - who is the king in digital environment: customer or content? The first question (RQ1) was the same for all respon-dents, and RQ2-RQ4 depended upon the answers of respondents to RQ1. The sample for this re-search consisted of 20 marketing managers in Serbia. The majority of respondents (60%) have more than 10 years of experience, followed by a group (25%) with 6-10 years of experience and 15% have less than 5 years of experience. The average age of participants was 37.45 years.

3. Results RQ1 - For greater number of respondents (63%) “content is king”. “Customer is king” is consid-ered by 37% respondents. It is interesting that almost all respondents said that the question was difficult, they were changing the answer; i.e. they were not sure and could not determine themselves promptly for one of the two offered answers. The majority (87%) posted questions – whether they could give two answers, because they considered that both customer and content were essential. When they were told that they should decide for



one answer, those who chose content, emphasized that the content is created for customer (87%). That is, although the answer was – content – they would add – the content is important for a cus-tomer.

The analysis of answers to RQ2- RQ4of re-spondents, who answered to RQ1 that “content is king” is as follows.

RQ2 - The greatest number of respondents (87%) considers that content is king because it enables brand awareness. Other reasons are: at-tracting customers (74%), interactions with cus-tomers and community in real-time (74%), en-gagement of customers, advocacy, eWOM, UGC (73%), retaining customers (69%), loyalty (67%), thought leadership (63%), reputation (62%), lead management (43%), conversion (42%), sale (37%), SEO (33%), and inbound links (28%).

RQ3 - Customer is not king, because he has no power – he cannot influence organisations’ oper-ating as an individual (considered by 85% of re-spondents), community has no power – consumers are not connected, although digital media allow them to be (82%). A greater number of respon-dents (76%) stated marketing myopia of organisa-tions as a reason – organisations are not suffi-ciently customer oriented, the customer is not in the focus of operating, therefore he cannot be king.

RQ4 - For organisations in which content is king, it means: serving customers in real time (86%), investing time into creation and promotion of enough content in real-time (85%); attracting and retaining customers (85%), educating cus-tomers (78%), entertaining customers (76%), en-tertaining with customers (63%), following up the UGC (user generated content) – listening of cus-tomers and communications (62%). Respondents stated that content should be: constant, useful, relevant, original, unique, fresh, educative, cus-tomer and community-driven, interesting, amus-ing, tochange, to be simple to read and share it through social networks and other media, to have viral power and provide positive eWOM and “buzz”, as well as that more frequent adding of content for mobile customers is necessary.

The analysis of answers to RQ2- RQ4 of re-spondents, who answered to RQ1, that “customer is king” is as follows.

RQ2 - Customer is king, because he brings profit (considered by 93% of respondents), en-sures survival (89%), as an ambassador and me-dium, transfers messages – eWOM (85%), WOM (85%).

RQ3 - Content is not king, because good con-tent does not guarantee sales and profit (consid-ered by 86% of respondents), i.e. content can at-tract digital visitors, but they do not have to be necessarily customers. Other reasons are: the amount of content (85%), problem in content tar-geting – content without context does not mean anything (74%), there is no staff for creating con-tent (35%), required time – for content creation and maintenance (26%).

RQ4 - For organisations in which customer is king, it means: thinking as a customer, connection with customers, two-way communication with customers, CRM, listening to customers, response to requirements of customers, service, behaviour towards customers as persons with names and surnames, and not as “numbers”.

4. Discussion and conclusions This study aims to investigate who the king is in digital environment. The key finding is that con-tent is king. The findings should not be simply interpreted as the majority of respondents were indecisive; they gave answers upon longer con-templating, and at last, the majority of respon-dents who stated that content is king, mostly added that content for customer is king (87%). It could be the final conclusion of the survey. The content is created for the customer and because of the customer. Thus the answer to the question: Who is the king in digital landscape: customer or content (in context)? is: customer and content. That is, a digital content is important for a digital customer (see Figure 2). In digital environment, both customers and content are essential, i.e. for customers, the continual creating and updating of digital content in compliance with context is needed. The findings suggest that there is a need to create customer and community-driven digital content in real-time. In digital landscape, digital content can be a competitive advantage.



Figure 2 Customer or content? – Digital content (in context) for digital customer/community is king

Source: Authors

If “digital content is king”, does it mean that

there is a digital marketing myopia, i.e. that the content is in focus rather than the customer’s ori-entation? The answer is – if the content is created in accordance to the requirements of customers and community, then the customer orientation is in focus. The focus on digital customer in speci-fied context while creating digital content is re-quired in order to avoid digital marketing myopia.

Thus, the conclusion reads: in accordance with customer orientation, starting from interests and requirements of digital customer, the creation of digital content is required.

5. Limitations and future research Although the findings yield valuable insights into digital marketing, there are some limitations. Firstly, in this paper, it is implied that content is created for the corresponding context. Future re-search could be oriented to separation of content and context and to the perception of significance of customer, content and context. Secondly, pos-sibilities in the field of creating of digital content are numerous – there is a great number of differ-ent content types. However, the use of numerous possibilities, fast creating – adding new content – quantity that does not follow up quality due to speed, insufficient number and insufficiently qualified staff, and what is most important, non-focus on customer, can lead to digital marketing myopia. The digital marketing myopia itself could be the subject of a research – whether it exists, what are the causes, consequences etc. Thirdly, an organisation has to transfer the same message across all channels – both online and offline. The integration of online and offline contents is re-quired. The compliance of messages through tra-ditional and digital media, also, can be the subject of a research. In the fourth place, the research can be oriented towards the influence of digital con-tent, which is created by organisations on UGC. In the fifth place, digital content on different me-dia can lead to inbound links, so it would be inter-esting to research the influence of digital content in different media on inbound links. In the sixth place, the number of mobile consumers is increas-ing, so it would be interesting to research the con-tent adaptation for mobile consumers. SM

Digital content (in context) for digitalcustomer/community is king

Brand awareness Attracting of customers Interactions with customers and commu-

nity in real-time Engagement of customers, advocacy,

eWOM and UGC (“Buzz”, “likes”, fans, followers)

Retaining of customers, loyalty Thought leadership, reputation Lead management SEO Conversion, sale Profit Survival

Digital customer is king

Digital content (in context) is king



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Mehok, K. (2010). The customer is king. ABRN, 49 (2), 36-42.

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Perreault, W. & McCarthy, J. (2002). Basic marketing: a global- managerial approach. Upper Saddle River: The McGraw- Hill Companies, Inc.

Prahalad, C. & Ramaswamy, V. (2004). The future of competition - co-creating unique value with customers. Boston: Harvard Business School Publishing.

Prahalad, C., & Ramaswamy, V. (2000). Co-opting customer competence. Harvard Business Review, 78 (1), 79-87.

Prahalad, C. & Krishnan, M. (2008). The new age of innovation – driving co-created value through global networks. Upper Saddle River: McGraw Hill.

Smith, P. (2000). Only some customers are king. Management, 47 (3), 24-26.

SpringCM (2012). Tactics for Managing the Real Work of Content Marketing - How to rule in the land where content is king. Retrieved September 14, 2012, from http://pages.springcm.com/rs/springcm/images/SPRINGCM_How-to-Automate-ContentMkting_2013.pdf?mkt_tok=3RkMMJWWfF9wsRoiuqTLZKXonjHpfsX57%2BUsUae0lMI%2F0ER3fOvrPUfGjI4CTstrI%2BSLDwEYGJlv6SgFTLnNMbRiy7gKXBU%3D

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Wahhab, I. (2012). The customer is always king. Retrieved September 23, 2012 from http://www.director.co.uk/MAGAZINE/2012/07_July-August/Iqbal_Wahhab_65_11.html.

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Correspondence

Beba Rakic

Graduate School of Business Studies, 8 Goce Delceva St, 11070, New Belgrade, Serbia


54 Jovo T. Tauzović Preliminaries of Modern Systems Management Concepts


Manuscript Requirements A paper must be written in text processor Microsoft Word. Paper size: A4. Margins: 3.0 cm on top and bot-tom, and 2.5 cm on left and right sides. As a guide, articles should be no more than 5.000 words in length. In case the paper exceeds the normal length, the Editors' consent for its publication is needed. Articles submitted for publication in Journal should include the research aim and tasks, with detailed methodology, presenting literature overview on the research object, substantiation of the achieved results and findings, conclusions and a list of references. Manuscripts should be arranged in the following order of presentation. First page: Title (no more that 10 words), subtitle (if any), autobiographical note (the author's full name, academic affiliation, telephone, fax and e-mail address and full international contact). Respective affiliations and addresses of co-authors should be clearly indicated. Please also include approximately 50 words of bio-graphical information on each author of the submitted paper. Second page: A self-contained abstract/summary/resume of up to 150 words, describing the research objective and

its conclusions

Up to ten keywords, which encapsulate the principal subjects covered by the article; and

A self-contained summary of up to 200 words, describing the article and its conclusions.

Subsequent pages: Main body of the text with headings, footnotes, a list of references, appendices, tables and illustrations. The paragraph parameters are: Font: Times New Roman, 10 pt, regular

Spacing: Before: 0, After: 0

Line Spacing: Single

Alignment: Justified

Indentation: Left: 0, Right: 0, Special: 0. Style: Normal (not Title, Heading1, Heading2,...,Body Text, etc!) Leave an empty line between paragraphs.

Headings: Headings must be short, clearly defined and numbered, except for Introduction and Conclu-sions. Apply at most three levels of headings. Please, leave two empty lines before headings and one empty line after. Font: Times New Roman, bold, 16 pt, centered. Section headings should be in bold with Leading Capitals on Main Words, Times New Roman, 14pt, bold, centered. Sub-section headings should be in italics, with Leading Capitals on Main Words, Times New Roman, 12 pt, bold.

All tables, graphs and diagrams are expected to back your research findings. They should be clearly referred to and numbered consecutively in Arabic numerals. They should be placed in the text at the appropriate paragraph (just after its reference). Tables should be centered. All tables must have captions. The title of your table should follow the table number. Tables should not be wider than the margins of the paper. Skip two lines before and after each table. Figures should be centered. All figures must have captions. The title of figures should appear immediately below the figure. The title of the figure should follow the figure number. Figures should not be wider than the margins of the paper. Skip two lines before and after each figure. Figures will not be redrawn by the publisher. Figures should be high-quality grayscale graphics (please, do not use colors): vector drawings (with text converted to curves) or 300 dpi bitmaps. Please do not supply any graphics copied from a web-site, as the resolution will be too low. In all figures taken or adapted from other sources, a brief note to that effect is obligatory, below the figure. One sentence at least referring to the illustration is obligatory. Mathematical expressions should be numbered on the right side, while all variables and parameters must be defined.

Copyright Articles submitted to the Journal should be authentic and original contributions and should have never been published before in full text, nor be under consideration for any other publication at the same time. Authors submitting articles for publication warrant that the work is not an infringement of any existing copyright and will indemnify the publisher against any breach of such warranty. For use of dissemination and to en-sure proper policing of use, papers and contributions become the legal copyright of the publisher unless otherwise agreed.

Proof Authors are responsible for ensuring that all manuscripts (whether original or revised) are accurately typed before final submission. One set of proof will be sent to authors, if requested, before the final publication, which must be returned promptly.

Referencing Guide The references should specify the source (such as book, journal article or a web page) in sufficient de-tail to enable the readers to identify and consult it. The references are placed at the end of the work, with sources listed alphabetically (a) by authors’ surnames or (b) by the titles of the sources (if the au-thor is unknown). Multiple entries by the same author(s) must be sequenced chronologically, starting from the earliest, e.g.:

Ljubojević, T.K. (1998). Ljubojević, T.K. (2000a). Ljubojević, T.K. (2000b). Ljubojević, T.K., & Dimitrijević, N.N. (1994).

Here is a list of the most common reference types: A. PERIODICALS Authors must be listed by their last names, followed by initials. Publication year must be written in pa-rentheses, followed by a full stop. Title of the article must be in sentences case: only the first word and proper nouns in the title are capitalized. The periodical title must be in title case, followed by the vo-lume number, which is also italicized:

Author, A. A., Author, B. B., & Author, C. C. (Year). Title of article. Title of Periodical, volume number(issue number), pages.

Journal article, one author, paginated by issue Journals paginated by issue begin with page 1 in every issue, so that the issue number is indicated in parentheses after the volume. The parentheses and issue numbers are not italicized, e.g.

Tanasijević, V. (2007). A PHP project test-driven end to end. Management Information Systems, 5 (1), 26-35.

Journal article, one author, paginated by volume Journals paginated by volume begin with page 1 in issue 1, and continue page numbering in issue 2 where issue 1 ended, e.g.

Perić, O. (2006). Bridging the gap: Complex adaptive knowledge management. Strategic Management, 14, 654-668.

Journal article, two authors, paginated by issue

Strakić, F., & Mirković, D. (2006). The role of the user in the software development life cycle. Management Information Systems, 4 (2), 60-72.

Journal article, two authors, paginated by volume

Ljubojević, K., & Dimitrijević, M. (2007). Choosing your CRM strategy. Strategic Management, 15, 333-349.

Journal article, three to six authors, paginated by issue

Jovanov, N., Boškov, T., & Strakić, F. (2007). Data warehouse architecture. Management Information Systems, 5 (2), 41-49.

Journal article, three to six authors, paginated by volume

Boškov, T., Ljubojević, K., & Tanasijević, V. (2005). A new approach to CRM. Strategic Management, 13, 300-310.

Journal article, more than six authors, paginated by issue

Ljubojević, K., Dimitrijević, M., Mirković, D., Tanasijević, V., Perić, O., Jovanov, N., et al. (2005). Putting the user at the center of software testing activity. Management Information Systems, 3 (1), 99-106.

Journal article, more than six authors, paginated by volume

Strakić, F., Mirković, D., Boškov, T., Ljubojević, K., Tanasijević, V., Dimitrijević, M., et al. (2003). Metadata in data warehouse. Strategic Management, 11, 122-132.

Magazine article

Strakić, F. (2005, October 15). Remembering users with cookies. IT Review, 130, 20-21. Newsletter article with author

Dimitrijević, M. (2009, September). MySql server, writing library files. Computing News, 57, 10-12. Newsletter article without author

VBScript with active server pages. (2009, September). Computing News,57, 21-22. B. BOOKS, BROCHURES, BOOK CHAPTERS, ENCYCLOPEDIA ENTRIES, AND BOOK REVIEWS Basic format for books

Author, A. A. (Year of publication). Title of work: Capital letter also for subtitle. Location: Publisher. Note: “Location" always refers to the town/city, but you should also include the state/country if the town/city could be mistaken for one in another country. Book, one author

Ljubojević, K. (2005). Prototyping the interface design. Subotica: Faculty of Economics.

Book, one author, new edition

Dimitrijević, M. (2007). Customer relationship management (6th ed.). Subotica: Faculty of Economics. Book, two authors

Ljubojević, K., Dimitrijević, M. (2007). The enterprise knowledge portal and its architecture. Subotica: Faculty of Economics.

Book, three to six authors

Ljubojević, K., Dimitrijević, M., Mirković, D., Tanasijević, V., & Perić, O. (2006). Importance of software testing. Subotica: Faculty of Economics.

Book, more than six authors

Mirković, D., Tanasijević, V., Perić, O., Jovanov, N., Boškov, T., Strakić, F., et al. (2007). Supply chain management. Subotica: Faculty of Economics.

Book, no author or editor

Web user interface (10th ed.). (2003). Subotica: Faculty of Economics. Group, corporate, or government author

Statistical office of the Republic of Serbia. (1978). Statistical abstract of the Republic of Serbia. Bel-grade: Ministry of community and social services.

Edited book

Dimitrijević, M., & Tanasijević, V. (Eds.). (2004). Data warehouse architecture. Subotica: Faculty of Economics.

Chapter in an edited book

Boškov, T., & Strakić. F. (2008). Bridging the gap: Complex adaptive knowledge management. In T. Boškov & V. Tanasijević (Eds.), The enterprise knowledge portal and its architecture (pp. 55-89). Subotica: Faculty of Economics.

Encyclopedia entry

Mirković, D. (2006). History and the world of mathematicians. In The new mathematics encyclopedia (Vol. 56, pp. 23-45). Subotica: Faculty of Economics.

C. UNPUBLISHED WORKS Paper presented at a meeting or a conference

Ljubojević, K., Tanasijević, V., Dimitrijević, M. (2003). Designing a web form without tables. Paper presented at the annual meeting of the Serbian computer alliance, Beograd.

Paper or manuscript

Boškov, T., Strakić, F., Ljubojević, K., Dimitrijević, M., & Perić, O. (2007. May). First steps in vis-ual basic for applications. Unpublished paper, Faculty of Economics Subotica, Subotica.

Doctoral dissertation

Strakić, F. (2000). Managing network services: Managing DNS servers. Unpublished doctoral disserta-tion, Faculty of Economics Subotica, Subotica.

Master’s thesis

Dimitrijević, M. (2003). Structural modeling: Class and object diagrams. Unpublished master’s thesis, Faculty of Economics Subotica, Subotica.

D. ELECTRONIC MEDIA The same guidelines apply for online articles as for printed articles. All the information that the online host makes available must be listed, including an issue number in parentheses:

Author, A. A., & Author, B. B. (Publication date). Title of article. Title of Online Periodical, volume number(issue number if available). Retrieved from http://www.anyaddress.com/full/url/

Article in an internet-only journal

Tanasijević, V. (2003, March). Putting the user at the center of software testing activity. Strategic Management, 8 (4). Retrieved October 7, 2004, from www.ef.uns.ac.rs/sm2003

Document from an organization

Faculty of Economics. (2008, March 5). A new approach to CRM. Retrieved July 25, 2008, from http://www.ef.uns.ac.rs/papers/acrm.html

Article from an online periodical with DOI assigned

Jovanov, N., & Boškov, T. A PHP project test-driven end to end. Management Information Systems, 2 (2), 45-54. doi: 10.1108/06070565717821898.

Article from an online periodical without DOI assigned

Online journal articles without a DOI require a URL.

Author, A. A., & Author, B. B. (Publication date). Title of article. Title of Journal, volume number. Retrieved from http://www.anyaddress.com/full/url/

Jovanov, N., & Boškov, T. A PHP project test-driven end to end. Management Information Systems,

2 (2), 45-54. Retrieved from http://www.ef.uns.ac.rs/mis/TestDriven.html. REFERENCE QUOTATIONS IN THE TEXT Quotations If a work is directly quoted from, then the author, year of publication and the page reference (preceded by “p.”) must be included. The quotation is introduced with an introductory phrase including the au-thor’s last name followed by publication date in parentheses.

According to Mirković (2001), “The use of data warehouses may be limited, especially if they contain confidential data” (p. 201).

Mirković (2001), found that “the use of data warehouses may be limited” (p. 201). What unex-pected impact does this have on the range of availability?

If the author is not named in the introductory phrase, the author's last name, publication year, and the page number in parentheses must be placed at the end of the quotation, e.g.

He stated, “The use of data warehouses may be limited,” but he did not fully explain the possi-ble impact (Mirković, 2001, p. 201).

Summary or paraphrase

According to Mirković (1991), limitations on the use of databases can be external and software-based, or temporary and even discretion-based. (p.201)

Limitations on the use of databases can be external and software-based, or temporary and even discretion-based (Mirković, 1991, p. 201).

One author

Boškov (2005) compared the access range…

In an early study of access range (Boškov, 2005), it was found... When there are two authors, both names are always cited:

Another study (Mirković & Boškov, 2006) concluded that… If there are three to five authors, all authors must be cited the first time. For subsequent refer-ences, the first author’s name will cited, followed by “et al.”.

(Jovanov, Boškov, Perić, Boškov, & Strakić, 2004).

In subsequent citations, only the first author’s name is used, followed by “et al.” in the introductory phrase or in parentheses:

According to Jovanov et al. (2004), further occurences of the phenomenon tend to receive a much wider media coverage.

Further occurences of the phenomenon tend to receive a much wider media coverage (Jovanov et al., 2004).

In “et al.", “et” is not followed by a full stop. Six or more authors

The first author’s last name followed by "et al." is used in the introductory phrase or in parentheses:

Yossarian et al. (2004) argued that…

… not relevant (Yossarian et al., 2001).

Unknown author

If the work does not have an author, the source is cited by its title in the introductory phrase, or the first 1-2 words are placed in the parentheses. Book and report titles must be italicized or underlined, while titles of articles and chapters are placed in quotation marks:

A similar survey was conducted on a number of organizations employing database managers ("Limiting database access", 2005).

If work (such as a newspaper editorial) has no author, the first few words of the title are cited, fol-lowed by the year:

(“The Objectives of Access Delegation,” 2007)

Note: In the rare cases when the word "Anonymous" is used for the author, it is treated as the au-thor's name (Anonymous, 2008). The name Anonymous must then be used as the author in the refer-ence list.

Organization as an Author

If the author is an organization or a government agency, the organization must be mentioned in the introductory phrase or in the parenthetical citation the first time the source is cited:

According to the Statistical Office of the Republic of Serbia (1978), …

Also, the full name of corporate authors must be listed in the first reference, with an abbreviation in brackets. The abbreviated name will then be used for subsequent references:

The overview is limited to towns with 10,000 inhabitants and up (Statistical Office of the Re-public of Serbia [SORS], 1978). The list does not include schools that were listed as closed down in the previous statistical over-view (SORS, 1978).

When citing more than one reference from the same author:

(Bezjak, 1999, 2002) When several used works by the same author were published in the same year, they must be cited adding a, b, c, and so on, to the publication date:

(Griffith, 2002a, 2002b, 2004) Two or more works in the same parentheses

When two or more works are cited parenthetically, they must be cited in the same order as they appear in the reference list, separated by a semicolon.

(Bezjak, 1999; Griffith, 2004) Two or more works by the same author in the same year

If two or more sources used in the submission were published by the same author in the same year, the entries in the reference list must be ordered using lower-case letters (a, b, c…) with the year. Lower-case letters will also be used with the year in the in-text citation as well:

Survey results published in Theissen (2004a) show that…

To credit an author for discovering a work, when you have not read the original:

Bergson’s research (as cited in Mirković & Boškov, 2006)… Here, Mirković & Boškov (2006) will appear in the reference list, while Bergson will not. When citing more than one author, the authors must be listed alphabetically:

(Britten, 2001; Sturlasson, 2002; Wasserwandt, 1997) When there is no publication date:

(Hessenberg, n.d.) Page numbers must always be given for quotations:

(Mirković & Boškov, 2006, p.12)

Mirković & Boškov (2006, p. 12) propose the approach by which “the initial viewpoint…

Referring to a specific part of a work: (Theissen, 2004a, chap. 3)

(Keaton, 1997, pp. 85-94)

Personal communications, including interviews, letters, memos, e-mails, and telephone conversations, are cited as below. (These are not included in the reference list.)

(K. Ljubojević, personal communication, May 5, 2008).

FOOTNOTES AND ENDNOTES

A few footnotes may be necessary when elaborating on an issue raised in the text, adding something that is in indirect connection, or providing supplementary technical information. Footnotes and end-notes are numbered with superscript Arabic numerals at the end of the sentence, like this.1 Endnotes begin on a separate page, after the end of the text. However, Strategic Management journal does not recommend the use of footnotes or endnotes.

CIP - Каталогизација у публикацији Библиотека Матице српске, Нови Сад 005.21 STRATEGIC managament : international journal of strategic managament and decision support systems in strategic managament / editor-in-chief Jelica Trninić. - Vol. 14, no. 1 (2009) - . - Subotica: University of Novi Sad, Faculty of Economics, 2009-. - 30 cm Tromesečno. - Nastavak publikacije: Strategijski menadžment = ISSN 0354-8414 ISSN 1821-3448 COBISS.SR-ID 244849927 Rešenjem Ministarstva za informisanje Republike Srbije, časopis "Strategijski menadžment" upisan je u regis-tar javnog informisanja pod brojem 2213, od 7. avgusta 1996. Rešenjem Ministarstva za nauku i tehnologiju Republike Srbije br. 413-00-435/1/96-01 časopis je oslobođen opšteg poreza na promet proizvoda kao publi-kacija od posebnog interesa za nauku.

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