NEGOTIA - Babeș-Bolyai University · Development ‐ Technical Competence, to reflect the...

NEGOTIA1/2014

STUDIA UNIVERSITATIS BABEŞ-BOLYAI

NEGOTIA 1/2014

March

EDITORIAL BOARD OF

STUDIA UNIVERSITATIS BABEŞ-BOLYAI NEGOTIA EDITOR-IN-CHIEF: Assoc. Prof. IOAN ALIN NISTOR, Babeş-Bolyai University, Cluj-Napoca, Romania EXECUTIVE EDITOR: Prof. dr. CORNELIA POP, Babeş-Bolyai University, Cluj-Napoca, Romania CO-EXECUTIVE EDITOR: Prof. dr. SVEN M. LAUDIEN, Otto von Guericke University, Magdeburg, Germany EDITORIAL BOARD: Prof. dr. PARTENIE DUMBRAVA, Babeş-Bolyai University, Cluj-Napoca, Romania Prof. dr. PHILIPPE BURNY, Université de Liège, Liège, Belgium Prof. dr. MARILEN PIRTEA, West University, Timişoara, Romania Prof. dr. SEDEF AKGÜNGÖR, Dokuz Eylül University, Izmir, Turkey Prof. dr. STANISLAVA ACIN SIGULINSKI, Subotica University of Novi Sad, Serbia Prof. dr. DJULA BOROZAN, J.J. Strossmayer University of Osijek, Osijek, Croatia Prof. dr. CORNELIA POP, Babeş-Bolyai University, Cluj-Napoca, Romania Assoc. Prof. dr. IVANA KRAFTOVA, University of Pardubice, Czech Republic Assoc. Prof. dr. MEDET YOLAL, Anadolu University, Eskisehir, Turkey Assoc. Prof. dr. KAREL TOMŠÍK, Czech University of Life Sciences, Prague, Czech Republic Assoc. Prof. dr. MAREK ĆWIKLICKI, dr. habil, Cracow University of Economics, Cracow, Poland Assoc. Prof. dr. BERNA KIRKULAK-ULUDAG, Dokuz Eylül University, Izmir, Turkey Assoc. Prof. dr. PHAPRUKE USSAHAWANITCHAKIT, Mahasarakham University, Maha Sarakham, Thailand Assoc. Prof. dr. IOAN CRISTIAN CHIFU, Babeş-Bolyai University, Cluj-Napoca, Romania Assoc. Prof. dr. SMARANDA COSMA, Babeş-Bolyai University, Cluj-Napoca, Romania Senior Lect. PETER JOHN RAS, Tshwane University of Technology, South Africa Senior Lect. dr. SUSANNA LEVINA MIDDELBERG, North-West University, Potchefstroom, South Africa Lect. dr. GAMON SAVATSOMBOON, Mahasarakham University, Maha Sarakham, Thailand Assist. Prof. dr. GURHAN AKTAS, Dokuz Eylül University, Izmir, Turkey Independent financial analyst ELISA RINASTITI MURESAN, Seattle, USA Prof. Ing. MIROSLAV SVATOŠ, CSc., Czech University of Life Science, Prague, Czech Republic Assoc. prof. dr. OVIDIU IOAN MOISESCU, Babeş-Bolyai University, Cluj-Napoca, Romania Prof. dr. SIMEON KARAFOLAS, Technological Educational Institute (TEI) of Western Macedonia, Greece SECRETARIES OF THE EDITORIAL BOARD: Lect. dr. OANA GICĂ, Babeş-Bolyai University, Cluj-Napoca, Romania Assist. drd. MARIA MONICA COROŞ, Babeş-Bolyai University, Cluj-Napoca, Romania

YEAR MONTH

Volume 59 (LIX) 2014 MARCH

ISSUE 1

S T U D I A UNIVERSITATIS BABEŞ–BOLYAI

NEGOTIA 1

STUDIA UBB EDITORIAL OFFICE: B.P. Hasdeu no. 51, 400371 Cluj-Napoca, Romania, Phone + 40 264 405352 CUPRINS – CONTENT – SOMMAIRE – INHALT

DANIE SCHUTTE, BIANCA LOVECHIO, Towards a Competency Framework for SMEs - a South African Case Study .......................................................................... 5 LUBOŠ SMUTKA, Mutual Trade in Agricultural Products among Visegrad Countries – Basic Development Trends ..................................................................... 21 CRISTINA ALEXANDRINA STEFANESCU, Transparency – a Requirement for Market Discipline in the Light of Prior Research Literature ...................... 41 SEVGI BAKAR, NILAY BIÇAKCIOĞLU, ÖZGE ÖZGEN, The Role of Psychic Distance on Internationalization Process of SMEs in Turkey ........................... 55 MIHAELA FILOFTEIA TUTUNEA, Software Solutions Adopted by SMEs: Case Study Regarding Romanian SMEs ..................................................................... 73

STUDIAUBBNEGOTIA,LVIX,1,2014,pp.5‐20(RECOMMENDEDCITATION)

TOWARDSACOMPETENCYFRAMEWORKFORSMES‐ASOUTHAFRICANCASESTUDY

DANIESCHUTTE1,BIANCALOVECHIO

ABSTRACT. Globalization has brought major changes in the worldeconomy,forexampleasignificantincreaseintradeandinvestments,rapidtechnologicalchanges incommunicationsaswellasan increasingtrend towardsderegulationof financialmarkets.Prospectsof increasedsalesintheworld‐widemarketdidnotnecessarilyposethesamebenefitstoallmarketparticipants.Incontrasttolargemulti‐nationalcompanies,thetraditionalfocusofSmallandMediumEnterprises(SMEs)didnotinclude exporting and importing along with alliances, branches andjointventuresabroad.Despite thepivotal rolesofsmallandmediumbusinesses inmanyeconomies, thespecificchallengesresulting fromtheglobalisationphenomenoncannotbedenied.

Smallandmediumbusinessesarefacedwithchallengessuchaslimitedresourcesandfunding,alackofformalmechanismsandpractices,ashortageoftrainedandexperiencedstaffaswellasdifferentclassificationsof small and medium businesses worldwide. In particular, smallerbusinesses do not normally have a well‐established and functionalaccounting department. In viewof the apparent differences betweentheaccountingfunctionforlargerandsmallerbusinesses,thequestionisaskedwhetheraccountantsinthesmallandmediumbusinesssectorshould demonstrate specific skills and competencies to address thedistinctivechallengesofthissector.Thefocusofthestudyisthereforeon the recently announced IES2 Initial Professional Development –TechnicalCompetenceanditsrelevanceintheSouthAfricanenvironment.

Keywords:CompetencyFramework,AccountingEducation.

JEL classification: M41 – Accounting; M48 – Government Policy andRegulation

1School forAccountingSciences,FacultyofEconomicandManagementSciences,NorthWestUniversity,PrivateBagX6001,Potchefstroom,2520,SouthAfrica,Tel:+27182991436,Fax:+27182991426,E‐mail:[email protected]

DANIESCHUTTE,BIANCALOVECHIO

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1. INTRODUCTION

1.1. Background

Theeconomyandbusinessenvironmentisconstantlychangingandthe world continues to become more global (Retief, 2012:8). Denis,Morrow and Roger (2006:3) defined globalisation as an increasinglyintegratedworldeconomyandaprocessunderpinnedbymodificationsofpoliciesinvariouscountriestowardsamoreopen,marketbased,systemofeconomicgovernance. Inthewakeof theglobalisationphenomenonasustainable, global business environment depends on a strong financialarchitecture(IFAC,2013a).Fromanaccountingperspective, it inevitablybrought with it moves to establish a single set of financial reportingstandards and other forms of standardisation across borders (Chan &White, 2007:605). As a result, international accounting standards havebeeninasteadystateofchangetosupportaviablefinancialarchitecture(Retief, 2012:8). The global profession can be strengthened, economicgrowthandstabilitycanbeachievedandthechallengeofcontributioncanbeaddressedbyfocusingonthedevelopmentofhigh‐qualityinternationalaccounting standards and encouraging unity amongst internationalparticipants (Ward, 2005). In addition, harmonisation of accountingpracticeswould be a giant leap to strengthen the accounting professionand protect the public interest globally (Pendergast, Partner, Urbach &Werlin,2006:16).

In order to address the importance of high‐quality accountingstandardsandforthepurposeofsettingabenchmarkamongstinternationalparticipants the International Federation of Accountants (IFAC) wasestablishedtoservethepublicinterestbycontributingtothedevelopmentandfacilitatingtheadoptionandimplementationofhigh‐qualityaccountingstandards (IFAC, 2013b). According to Horstmann (2005:98) IFAC’sprimarymission is to carry on strengthening the global profession andeconomiesbyestablishingandpromotingunioninternationalaccountingstandards. The challenges and opportunities facing this standard‐settingbody include meeting the increasingly different needs of global users,addressingconcernsaboutcomplexity,clarityandrelevance(Horstmann,2005:98) and providing direction to financial architectures worldwide(IFAC,2013a).Despitethefactthatthedevelopmentandimplementationofhigh‐qualityaccountingstandardswasnotwithoutanylimitations,the


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needforasinglesetofinternationalaccountingstandardswasrecognized(IFAC,2007). Inthisregarditwasarguedthatasinglesetofaccountingstandardsgainsthetrustoftheglobalaudienceinfinancialreportingandthereforeincreasesinvestments(IFAC,2007).

InadditiontoitsroleinensuringuniformaccountingpracticestheIFACfacilitatesthestructuresandprocessesthatsupporttheoperationsofthe International Accounting Education Standards Board (IAESB). ThemainobjectiveoftheIAESBistoservethepublicinterestbysettinghigh‐quality educational standards for professional accountants and bycontributing to the promotion of national and international educationstandards(IAESB,2012:2).TheIAESBdevelopseducationstandardsandprovidesguidanceandinformationonpre‐qualificationeducation,trainingofprofessionalaccountants,andprofessionaleducationdevelopmentandendurance (IAESB, 2012:2). In order to ensure the development andmaintenance of competence required from professional accountants toperformvariousroles,theprojectoftheIAESBistoimprovetheclarityofitsstandards(IAESB,2012:5).In2009theIAESBcompleteditsrevisionofthe Framework for International Education Standards for ProfessionalAccountantswhichsetsoutthefundamentalconceptsandprinciplesfortheInternationalEducationStandards(IES)(IAESB,2012:5).

The Framework for International Education Standards forProfessionalAccountants(2009)identifiesgeneraleducation,professionalaccountingeducation,practicalexperienceandassessmentascomponentsofthelearninganddevelopmentofaprofessionalaccountant.Inreactiontotheever‐changingglobalenvironmenttheIAESBcommencedtoreviseIES1toIES8,withthegoalofensuringconsistencywithconceptsoftherevisedframeworkandimprovingclarity(IAESB,2012:5).

The extant version of IES 2, Content of Professional AccountingEducation Programs, published inMay 2004 and effective from January2005, prescribes an IFAC member body’s professional accountingeducation program content of knowledge required from a candidate toqualifyasaprofessionalaccountant(IAESB,2012:5).Thetitlehasbeenamended in the proposed IES 2 (Revised) to Initial ProfessionalDevelopment ‐TechnicalCompetence, to reflect the IAESB’s review thatIES2isoneofthesixIESscoveringInitialProfessionalDevelopment(IPD)(IAESB,2012:6).AccordingtotheproposedIES2(Revised),IPDisdefinedas the learning and development process of competence required toperformthevariousrolesofaprofessionalaccountant(IAESB,2012:6).In


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addition, technical competence is used to describe the ability to applyprofessional knowledge to performa role to a defined standard (IAESB,2012:6).TheIAESBdecidedtoadoptalearningoutcomesapproachintheproposed IES 2 (Revised) by specifying eleven competence areas: (i)financial accounting and reporting, (ii) management accounting, (iii)financeandfinancialmanagement,(iv)taxation,(v)auditandassurance,(vi) governance, riskmanagement and internal control, (vii) businesslaws and regulations, (viii) information technology, (ix) business andorganizationalenvironment,(x)economicsand(xi)businessmanagement(IAESB, 2012:7). Furthermore, instead of prescribing knowledge, theIAESBidentifiedfourproficiencylevels,namelyfoundational,intermediate,advance and mastery levels to demonstrate professional competence(IAESB,2012:20‐22).InadditiontheIAESBincludedtwonewrequirementsin the proposed IES 2 (Revised) for IFAC member bodies to regularlyreviewandupdateprofessional accountingeducationprograms thataredesigned toachieve the learningoutcomesand toprescribeappropriateassessmentactivities toassess thedevelopmentof technicalcompetenceinarapidlychangingandcomplexenvironment(IAESB,2012:6).Thus,theIAESB requires that aspiring professional accountants should be able todemonstratenotonly technicalcompetencebutalsoprofessionalvalues,ethics,andattitudes(IAESB,2012:6).

From the aforementioned an aspiring professional accountant isfirstly described as an individual who has commenced a professionalaccountingeducationprogramaspartofIPD.Secondlyprofessionalskillsaredescribedas the intellectual,personal, interpersonal,communicationand organizational skills that a professional integrates with technicalcompetenceandprofessionalvalues,ethicsandattitudestodemonstrateprofessional competence; and lastly professional accounting educationprograms are programs designed to support aspiring professionalaccountants to develop the appropriate professional competence by theend of IPD. They may consist of formal education delivered throughdegrees and courses offered by universities, other higher educationproviders, IFAC member bodies and employers, as well as workplacetraining(IAESB,2012:9).

In order to fulfill the IAESB’s desire for the proposed IES 2(Revised)tobeconsistentlydraftedtheIAESBiscurrentlyconsideringcommentsandfeedbackandtheproposedIES2(Revised) isexpectedtobefinalizedinthethirdquarterof2013andeffectiveforimplementationforperiodsbeginningonorafter1July2015(IAESB,2012:5‐7).


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Comments on matters in the proposed IES 2 (Revised) wasaddressedinastructureofeightquestionsandreleasedfromOctober2012. The results of the eight questions (1‐8) from the submittedcommentletterscouldbebrieflysummarizedasfollows:

Question1‐Themajorityofthecommentsagreedthattheelevencompetenceareas listed inParagraph7of theproposed IES2 (Revised)capturesthebreadthoftechnicalcompetenceareasrequiredfromaspiringprofessionalaccountants. Itwashoweversuggestedthatthesequenceofthecompetenceareasshouldbereviewedandrestructuredaccordingtonecessaryeducationalsteps.

Questions 2 and 3 ‐ A number of comments were made on theadequacyoflearningoutcomescapturingtheminimumlevelofproficiencyand the assistance of the Appendix in the interpretation of the learningoutcomes.

Questions4to8–Thecommentsindicatedthattheobjectivetobeachievedbyamemberbodyisappropriate.Commentatorsalsoagreedthattherequirementsofparagraphs7,8,and9oftheproposedIES2(Revised)aresuitableforachievinganappropriateleveloftechnicalcompetence.

1.2.RationaleforthestudyThecompetenciesofprofessionalaccountantshavebeenchallenged

bytheever‐changingbusinessenvironment.Theskills,understandingandpersonalattributes toensurea successful career in theglobalworldarebecomingincreasinglymoreimportant(Knight&Yorke,2004)Successintheworking environment depends on the identification of specific skillsand competencies required of employees. In this regard a competencyframework is defined as a high level description of competencies(knowledge,skillsandattributes)individualsshouldpossessattheentrypoint to a particular profession (SAICA, 2010:3). In other words, acompetencyframeworkprovidesthefoundationuponwhichprofessionsaredevelopedandthereforeenablesaclearunderstandingoftherequiredcompetencies a prospective employee should demonstrate embarking acareer(SAICA,2010:3).

Agarwal and Gupta (2008) argue that a gap exists between thestudents’knowledgeaftergraduationandthepracticalapplicationthereofin the real‐world business. They found that students need to reflect on


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knowledgebeforetheycanapplythisknowledge.Inanaccountingcontextthe theoryandpracticeof a competency frameworkwasprimarilybuiltupontheworkoftheAmericanpragmatistphilosopher,JohnDewey,whoarguedthatknowledgeisgainedbycombiningtheoryandpractice(SAICA,2010:8).Practicingaccountantshouldhavetheoreticalknowledgeandtheskilltoapplythisknowledgeinpractice(Rudman&Terblanche,2012:60‐61). According to KPMG (2009) and PriceWaterhouse Coopers (2009)knowledge(theoreticalaspects)canonlybeachievedthroughreal‐worldclientsandtheirspecificcircumstances.Upuntilnow,researchers foundthatstudentscanreflectonandapplytheirtheoreticalknowledgewhenapplying this knowledge in a business environment (Rudman &Terblanche, 2012:57; Rudman & Terblanche, 2011:63). These studiesinvestigated the question if theoretical knowledge in real‐life situationhelps students to better understand, conceptualise and contextualisetheoreticalknowledgeinpractise.

In order to respond to recent studies on the existence of a gapbetweentheoryandknowledgetheSouthAfricanInstituteofProfessionalAccountants(SAIPA) isdevelopingacompetency frameworkbasedonthe IFAC model. The accountancy institute represents ProfessionalAccountants (SA) practising mainly in the small and medium businesssectorinSouthAfrica(SAIPA,2013a:2).SAIPAqualifiesasoneofonlytwoSouth African accounting bodies that are full members of IFAC (SAIPA,2012) and have reciprocal agreements with national and internationalbodies (Pan African Federation of Accountants (PAFA); PracticingProfessionalAccountants(CPA)inIreland;InstituteofPublicAccountants(IPA) in Australia; Institute of Commercial and Financial Accountants(CFA)inNamibia)(SAIPA,2013a:2).SAIPAisrecognisedasaprofessionalbodyasdeterminedbytheNationalQualificationsFramework(NQF)Act67 of 2008 by the South African Qualifications Authority (SAQA) thatacknowledged the critical role SAIPA plays in quality assurance andstandards development within the National Qualifications Framework.(SAIPA,2013b). Inaddition, twoofNQFAct67of2008most importantobjectivesistogenerateasingleintegratednationalframeworkforlearningachievementsandtoenhancethequalityofeducationandtraining(SAIPA,2013b). Therefore, SAIPA must ensure quality experiential training(SAIPA,2013b)totheirlearnersbybeinga“trulyglobalvoiceonissuesofstandardsettingandcompliance”(SAIPA,2012:11).


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GlobalisationistheessenceofIFACandtheIAESB’sobjectivetoservethepublic interestandcontribute to thedevelopment, implementationand convergence of high‐quality international accounting standards. Acompetencyframeworkinanaccountingcontextshouldthereforeaddressthechallengesarisingfromtherapidlychangingcomplexenvironmenttobridge the gap between theory and skills and to enable students toreflect on and apply their theoretical knowledge when applying thisknowledge in the business environment. In addition, a competencyframework lends strong support to tertiary accounting programmesusedtopreparestudentsforthe“real‐world”workingenvironmentandconsequentlyrequiresaccountingcoursestobetaughtusing“real‐world”scenarios(SAICA2010:12). Inotherwords, theon‐goingdevelopmentof a competency framework for SAIPA promises lucrative results andserviceofthepublicinterestbysettingonesetofuniformhigh‐qualityaccounting standards, accepted and enforced on a consistent basisamongstinternationalparticipants(Pendergastetal.,2006:19).

2. PROBLEMSTATEMENTANDRESEARCHOBJECTIVE

Thecentralargumentofthisstudyistheexistenceofagapbetweentheoryandskillsandtheimportanceofaccountingbodies’requirementstoensurequalityeducationprogramsinordertocomplywiththehigh‐quality standards set amongst international participants. In contrast,themajorityofSAIPApracticesareoperatinginthesmallandmediumbusinesssectorthatdonotnecessarilyhaveaninternationalfocus(Dixon,Thompson&McAllister,2002:27).Therefore,theprimaryobjectiveofthestudyistoinvestigatethefoundationuponwhichSAIPAprogramsaredevelopedandaskthequestionwhethertheon‐goingdevelopmentandimplementationofacompetencyframeworkforProfessionalAccountants(SA)willbesufficienttobridgethegapbetweentheoryandskills.Thiswillalsoenableprofessionalaccountingeducatorstoprovidestudentswith the ability to apply the theory theyhavebeen taughtwhen theyenterthereal‐worldbusinessaftergraduation.

Thecontributionthereofisthatthedevelopmentandimplementationof a competency framework according to high‐quality internationalaccounting standards for the professional accountant will enable theprofessional accountant to respond to the fast‐changing environment


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and be a life‐long learner (SAICA, 2010:7). Despite the fact that thecompetency frameworkmay require re‐evaluation from time to timedue to the fast‐changing social, political and business environment(SAICA, 2010:9), it can enable a clear understanding of the requiredcompetenciesaprofessionalaccountantshoulddemonstrateembarkingacareer(SAICA,2010:3).

3. DATAANDMETHODOLOGY

Theresearchencompassedbothaliteratureandempiricalstudy.The literature review provided the theoretical background of thecompetency objectives and requirements of IFAC and the IAESB. Theliteraturereviewalsoidentifiedagapbetweentheoryandpractice.

The literature study formed the foundation for the empiricalstudy, which considered the relevance of the IAESB’s competencyframeworkinaSouthAfricancontext.SinceIES2‐InitialProfessionalDevelopment‐TechnicalCompetence(Revised)wasdevelopedtoidentifytheskillsandcompetenciesrequiredtoentertheaccountingenvironmentthe population comprised accounting firms who attended the NorthWestUniversitycareerexpoin2013.Thesamplewasnarroweddownto accounting firms in the small andmedium business sector. In thisregardthetechnicalcompetencelearningoutcomesaccordingtoTableA of the proposed IES 2were sent to 23 accounting firmswhowereasked to rate the competency areas according to the IAESB’s fourproficiencylevels.Fifteenaccountingfirmsprovidedfeedback(presentedin Annexure A). The average rating of the 11 competency areas ispresentedinFigure1.


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Figure1–AverageRatingofLearningCompetenceAreas

TheaccountingfirmsratedTaxation(2.98)andFinancialAccounting(2.86) as the most important competence areas. Business Laws andRegulations(2.61)wereconsideredthethirdmost importantcompetencearea.Governance,RiskManagementandInternalControl(2.34)aswellasAudit and Assurance (2.27)were also considered important. In contrast,Economics(1.21)andtheBusinessandOrganizationalEnvironment(1.59)were not highly rated by the accounting firms. In addition the resultsrevealed that Information Technology (1.91), Management Accounting(1.95) as well as Finance and Financial Management (2.05) are notconsideredthatimportantbytheaccountingfirmsincludedinthesurvey.In summary the 11 competency areas could be ranked in the followingsequence:


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Table1–Proficiencylevelspercompetencearea

Competencearea Rating ProficiencylevelTaxation 2.98 AdvancedFinancialaccountingandreporting 2.89 AdvancedBusinesslawsandregulations 2.61 Intermediateto

AdvanceGovernance,riskmanagementandinternalcontrol

2.34 IntermediatetoAdvance

Auditandassurance 2.27 IntermediatetoAdvance

Businessmanagement 2.18 IntermediateFinanceandfinancialmanagement 2.08 IntermediateManagementaccounting 1.95 IntermediateInformationtechnology 1.91 IntermediateBusinessandorganizationalenvironment

1.59 FoundationtoIntermediate

Economics 1.21 Foundation

4. DISCUSSIONANDCONCLUSION

The evidence suggests that accounting students can expect toprovide a combinationof accounting and tax consulting services to smalland medium businesses in the South African environment. Theinterpretation of specialized reports included under Financial Accountingwas however not considered that important by the accounting firmsincludedinthestudy.WithregardstoTaxation,internationaltaxationandtheinvolvementofataxspecialistobtainedthelowestratings.Therelevantimportance of the regulatory environment in which small and mediumbusinesses operate was also confirmed. Business laws and regulation,Governance, risk management and internal control as well as Audit andassurancewereconsideredtobeintermediatetoadvancedareas.

In contrast, the accounting firms indicated that informationtechnology was not considered that important. Moreover, the studyrevealed that only moderate levels of complexity are required forManagementaccountingaswellasforFinanceandfinancialmanagement.The lowerthanexpectedrating for theaforementioneddisciplinescouldbeindicatingthatfinancialstatementspreparedinthesmallandmedium


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business sector is conformity in nature and that accountants are notinvolvedintheday‐to‐daymanagementofclients,especiallyinviewoftherelativelylowratingforBusinessmanagement;BusinessandorganizationalmanagementaswellasEconomics.

InsummarythestudyidentifiedthemostimportantcompetenceareasforaccountantsintheSouthAfricansmallandmediumbusinesssector.Theresultscouldbeofvaluetoacademicinstitutionsdevelopingacademic programs and preparing accounting students for the smallandmediumbusiness sector. In viewof the exploratorynatureof thestudy further studies are encouraged, especially in an internationalcontexttocomparethecompetencyrequirementsacrossborders.

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SAIPAseeSOUTHAFRICANINSTITUTEOFPROFESSIONALACCOUNTANTS.SOUTH AFRICAN INSTITUTE OF PROFESSIONAL ACCOUNTANTS. (SAIPA).

2013a.Draft:Competencyframework.(Unpublished).SAIPA (SOUTH AFRICAN INSTITUTE OF PROFESSIONAL ACCOUNTANTS).

2013b.SAQArecognisesSAIPAasaprofessionalbody.OfficialjournaloftheSouthAfricanInstituteofProfessionalAccountants,1:26.

SAIPA (SOUTH AFRICAN INSTITUTE OF PROFESSIONAL ACCOUNTANTS).2012.ThechangingfaceoftheProfessionalAccountant(SA).TheProfessionalAccountantOfficial journalof theSouthAfrican InstituteofProfessionalAccountants,1:10‐12.

SIMONSEN,J.L.2012.CommentontheexposuredraftoftheproposedrevisedInternational Education Standard 2 Initial Professional Development‐TechnicalCompetence,(IES2).http://www.ifac.org/publications‐resources/ies‐2‐initial‐professional‐development‐technical‐competence.Dateofaccess:15July2013.

WARD,G.2005.Theaccountancyprofession:aglobalperspective.http://scholar.google.co.za/scholar?q=the+accountancy+profession:+a+global+perspective&hl=en&as_sdt=0&as_vis=1&oi=scholart&sa=X&ei=9DrDUZDzD‐O47AarpoDABg&ved=0CCkQgQMwAA. Date of access: 13 May2013.


19

Annexure A – Learning Outcomes for Technical Competence Area

Mean Min Max Variance Standard deviation

(a) Financial accounting and reporting(i) Apply accounting principles to transactions and other events 3.36 3.00 4.00 0.23 0.48 (ii) Apply IFRS or other relevant standards to a range of transactions and other events 3.09 2.00 4.00 0.63 0.79 (iii) Classify financial data appropriately in financial statements 3.18 2.00 4.00 0.51 0.72 (iv) Prepare primary financial statements, including consolidated financial statements, inaccordance with laws and regulations

2.91 1.00 4.00 0.81 0.90

(v) Evaluate the appropriateness of accounting policies used to prepare financial statements 3.00 2.00 4.00 0.73 0.85

(vi) Interpret specialized reports including sustainability reports and integrated reports 1.64 1.00 3.00 0.78 0.88

(b) Management accounting(i) Apply techniques such as product costing, variance analysis, inventory management,and budgeting and forecasting to improve the performance of an organization

1.91 1.00 3.00 0.45 0.67

(ii) Analyze and integrate financial and nonfinancial data to provide relevant information formanagerial decision making

2.09 1.00 3.00 0.45 0.67

(iii) Prepare reports to support managerial decision making, including reports that focus onplanning and budgeting, cost management, quality control, performance measurement, andbenchmarking

2.09 1.00 3.00 0.45 0.67

(iv) Compare and evaluate the performance of products and business segments 1.73 1.00 3.00 0.38 0.62

(c) Finance and financial management(i) Compare the various sources of finance available to an organization, including bankingfinance, financial instruments, and different capital markets

2.09 1.00 3.00 0.63 0.79

(ii) Analyze an organization’s cash flow and working capital requirements 2.27 1.00 3.00 0.38 0.62 (iii) Analyze the current and future financial position of an organization, using techniquessuch as ratio analysis, trend analysis, and cash flow analysis

2.18 1.00 3.00 0.51 0.72

(iv) Evaluate the appropriateness of the components used to calculate an organization’scost of capital

2.09 1.00 3.00 0.63 0.79

(v) Apply appropriate capital budgeting techniques to the evaluation of capital investmentdecisions

1.64 1.00 3.00 0.41 0.64

(d) Taxation(i) Explain domestic taxation compliance and filing requirements 3.27 2.00 4.00 0.56 0.75 (ii) Prepare tax calculations for direct and indirect taxes for individuals and organizations 3.27 2.00 4.00 0.38 0.62 (iii) Analyze the taxation issues associated with non-complex international transactions 2.45 1.00 4.00 0.61 0.78 (iv) Explain the difference between tax planning, tax avoidance, and tax evasion 3.45 2.00 4.00 0.43 0.66 (v) Identify when it is appropriate to refer matters to taxation specialists 2.45 1.00 3.00 0.43 0.66

(e) Audit and assurance(i) Analyze the risk profile of an entity to identify the components of audit risk 2.36 1.00 4.00 1.32 1.15 (ii) Describe the objectives of an audit of financial statements 2.45 1.00 4.00 1.16 1.08 (iii) Describe the activities involved in performing an audit of financial statements 2.27 1.00 4.00 1.47 1.21 (iv) Identify applicable auditing standards (e.g., ISAs), laws and regulations relevant to anaudit engagement

2.09 1.00 4.00 1.72 1.31

(v) Understand the key elements of assurance service engagements 2.18 1.00 4.00 1.60 1.27

(f) Governance, risk management and internal control(i) Explain the principles of good governance, including the rights and responsibilities ofowners, and the role of stakeholders in governance, disclosure, and transparency

2.55 1.00 4.00 0.98 0.99

(ii) Analyze the components of an organization’s governance structure 2.27 1.00 4.00 1.11 1.05 (iii) Analyze an organization’s risks and opportunities within a risk management framework 2.09 1.00 4.00 1.17 1.08 (iv) Analyze the components of internal control 2.45 1.00 4.00 1.16 1.08

(g) Business laws and regulations(i) Explain the laws and regulations that are relevant to the environment in whichprofessional accountants operate

2.91 2.00 4.00 0.26 0.51

(ii) Explain different legal forms of businesses and the legislation and regulations that govern each form

2.55 1.00 4.00 0.79 0.89

(iii) Identify when it is appropriate to refer matters to legal specialists for help 2.36 1.00 3.00 0.60 0.77

(h) Information technology(i) Describe the basic hardware and software components of information systems 1.91 1.00 4.00 0.99 1.00 (ii) Identify general computer controls and application controls required for effectiveaccounting information systems

2.18 1.00 3.00 0.51 0.72

(iii) Analyze the adequacy of controls for relevant application systems 1.91 1.00 3.00 0.45 0.67 (iv) Explain the components of an information systems continuity plan 1.64 1.00 3.00 0.41 0.64


20

Annexure A – Learning Outcomes for Technical Competence Area (continued)

Mean Min Max Variance Standard deviation

(i) Business and organizational environment(i) Describe the environment in which an organization operates, including the maineconomic, legal, political, social, technical, international, and cultural forces and theirinfluences and values

2.00 1.00 3.00 0.36 0.60

(ii) Analyze key features in the global environment that affect international trade and finance 1.45 1.00 2.00 0.25 0.50 (iii) Explain the impact of legal, political, cultural, and technological contexts on theprocesses of internationalization of an organization

1.55 1.00 3.00 0.43 0.66

(iv) Identify the characteristic features of globalization, including the role of multinationals, e-commerce and emerging markets

1.36 1.00 2.00 0.23 0.48

(j) Economics(i) Describe the fundamental principles of microeconomics and macroeconomics 1.09 1.00 2.00 0.08 0.29 (ii) Interpret the effect of movements in key indicators of microeconomic andmacroeconomic activity

1.09 1.00 2.00 0.08 0.29

(iii) Explain the competitive environment facing organizations under different types of marketstructures, including competitive markets, monopoly, monopolistic competition, andoligopoly

1.45 1.00 3.00 0.43 0.66

(k) Business management(i) Explain the various ways that organizations may be designed and structured 2.27 1.00 3.00 0.56 0.75 (ii) Explain the purpose and importance of functional areas, such as human resourcemanagement, project management, procurement, technology management, and marketing

2.27 1.00 3.00 0.56 0.75

(iii) Explain the external and internal factors that may influence the formulation of anorganization’s strategy

2.27 1.00 4.00 1.29 1.14

(iv) Analyze relevant factors in the internal and external business environment that impacton managerial work and organizational performance

2.09 1.00 3.00 0.81 0.90

(v) Compare how various theories of organizational behavior may be used to enhance theperformance of the individual, teams, and the organization

2.00 1.00 3.00 0.73 0.85

Legends:1 = Foundation (define, explain, low levels of complexity)2 = Intermediate (apply, analyze, moderate levels of complexity)3 = Advanced (integrating theories and principles, act, advise, evaluate)4 = Mastery (integrate technical competence, high levels of complexity)


MUTUALTRADEINAGRICULTURALPRODUCTSAMONGVISEGRADCOUNTRIES–BASICDEVELOPMENTTRENDS

LUBOŠSMUTKA1

ABSTRACT.Theconductedpaperisanalyzingthemutualtraderelationsexisting among V4 countries. Themain aim of the paper is to identifychangesintheiragriculturalsectorwhichhappenedduringthemonitoredtime period and to compare differences existing in area of agriculturalsectorandtradedevelopmentinthecaseofanalyzedcountries.Anotheraimofthepaperisrelatedtotheirtraderelations.Inthiscasethepaperisidentifyingbasictrendsintheareaofindividualanalyzedcountries’tradedevelopmentandmutualagrariantradecompetitivenessisalsoanalyzed.Thepaperisanalyzingagriculturalsectorandtradedevelopmentin2000– 2012. The basic statisticalmethods are applied to analyze individualtime series. The individual countries agrarian trade competitivenessanalysisisrealizedthroughtheBalassaandLafayindex.Onthebasisofthe findings coming from the paper, it can be said that individual V4countries’agriculturalproductionandtradechangedsignificantlyduringthe analyzed time period. Agricultural production and trade representonly a marginal part of the economy and the total merchandise trade.Further, in regard to the agricultural trade of the individual analyzedcountries, itmaybe stated that the commodity structureaswell as theterritorial structure isvery significantly concentrated.Thepredominantmajorityofagriculturaltrade–exportaswellasimport–iscarriedoutinregard to EU countries. In this case it is necessary to emphasize thatindividualV4countriesare importanttradepartners foreachother.OnthebaseofVisegradcountries’mutualtradeanalysis‐itispossibletosaythatthemaintradersactiveonV4marketaretheCzechRepublicandSlovakia.ThemostcompetitiveactorsoperatinginV4marketarePoland andHungary. Ifwe are analyzing individual countries export

1 Doc. Ing.Ph.D., Department of Economics, Faculty of Economics and Management,CzechUniversity of Life Sciences in Prague, Kamýcká 129, 165 21 Prague 6 ‐ Suchdol, CzechRepublic,E‐mail:[email protected]

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performancewecanseethatV4marketisdominatedbyPolandandtheCzechRepublic.

Keywords: Visegrad group, agriculture, sector, trade, development,mutual,external,EU,value,competitiveness,relations

JELclassification:F14,F15,Q13,Q17

1. Introduction

Visegrad countries (Czech Republic, Hungary, Poland and SlovakRepublic)representsaspecificgroupofcountries.Theyarelocatedinthecentre of Europe and they have very intensive historical, economic andpoliticalrelations.ThecountriesoftheVisegradGroup–alsoreferredtoasthe V4 countries ‐ have in recent years undergone a dramaticdevelopment,whichhasverysignificantlyinfluencedthestructureoftheireconomy, including the agricultural sector and trade with agriculturalproducts.Immediatelyafterthecollapseofthe“Easternbloc”,COMECONandtheUSSR,allV4countriesfacedasignificanteconomicdownturnthatcoincidedwiththecollapseoftheformersocialistsystemanditsmarketlinkages.Theagrariansectorsufferedverysignificantlossesintheprocessofthetransitionfromacentrallyplannedeconomytoamarketeconomy.Inparticular,livestockproductionandthenumberofworkersemployedin the agricultural sector has reduced noticeably – as it was alreadyhighlightedbyPokrivcak,Ciaian, (2004);Ciaian,Swinnen(2006);Ciaian,Pokrivcak(2007);Bojnec,Ferto(2009);Basek,Kraus,(2009)etc.Thishasresultedinadecreaseinthelevelofself‐sufficiencyofV4countries.

2. Literaturereview

Visegradcountrieseconomyandtradeareobjectsofmanyanalysesand research papers published in the past. On the base of researchesconducted by the author and other experts focused on V4 area, it ispossibletosaythat individualcountries’agriculturalsectorandagrariantraderecordedthesignificantchangesinthelasttwodecadesandespeciallythepositionofagriculturalsectorwithinindividualV4members’economy


23

alsochanged.TheshareofagriculturalexportsintotalexportsinthecaseoftheV4countriesfellbelow10%.IntheCzechRepublicandSlovakiathereduction has been much more significant, since the position of theagrariansectorisnotassignificantinthesetwocountriesasinthecaseinPolandandHungary.Duringthefirstyearsoftransition(inthelastdecadeofthe20thcentury)whiletheshareofagrarianexportsinOECDcountriesand in the EU countrieswas increasing, in the Countries of Central andEasternEurope,andespeciallyinregionsthroughouttheCommonwealthofIndependentStates(CIS),thetotalvalueofagriculturaltradestagnatedor even gradually decreased (Pokrivcak Drabik, 2008). Here, a gradualeconomic transformation took place, leading to the correction of traderelationshipdeformationscausedduringtheperiodbefore1990(Drabik,Bartova,2008).Intheearlyyearsofthenineties(especially1990–1995),theshareofEUcountries inagrarian tradewith theV4countrieswasabnormally low, but over time (thanks to structural changes, andfunctioning market mechanisms) it has increased to its current level ‐typicalforanEUmembercountry(Bussiere,FidrmucandSchnatz,2005).The financial crisis affected also trade ofV4 countries (The impact ofthecrisiswassignificantespecially in2009and2010.). Ithasresultedin the collapse of large financial institutions around theworld. Itwasconsidered bymany economists to be theworst financial crisis sincetheGreatDepressionof the1930s. It contributed to the failureofkeybusinesses,declines inconsumerwealthestimated inthetrillionsofU.S.dollars,substantialfinancialcommitmentsincurredbygovernmentsandasignificantdeclineineconomicactivity.Manycauseshavebeenproposed,withvaryingweightassignedbyexperts.Bothmarket‐basedandregulatorysolutions have been implemented or are under consideration, whilesignificantrisksremainfortheworldeconomyoverthe2014.Althoughthiseconomicperiodhasattimesbeenreferredtoas"theGreatRecession,"thissamephrasehasbeenusedtorefertoeveryrecessionoftheseveralprecedingdecades(Hambalková,Rovný,2010).

TheEUshareintotalagrariantradeoftheV4countriesincreasedmainly due to a process of liberalization, occurring not simply as aconsequenceoftheGATT/WTOnegotiationrounds,butmainlybecauseofthepartnershipestablishedbetweentheV4andEUcountriesintheprocess of integration of the former Eastern European countries intotheEuropeanstructures(Pohlova,Tucek,Kraus,2007).Inthisregard,itshould be stressed that the process of liberalization, which affected

LUBOŠSMUTKA

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tradebetweentheV4countriesandtheEUintheperiodpriortotheirEUaccession,wasasymmetric incharacter(Volosin,Smutka,2011). ItshouldbeemphasizedhoweverthatinthisperiodtheV4countrieshadalso invested considerable resources to support their own agrariansectorandagrarian trade, though theirability tosupport theagrariansectorwassignificantlylaggingbehindthatoftheEUcountries(Tucek,Volosin, 2006). The process of liberalization affected not only the V4tradewiththeEUcountries;butalsoduringthisperioditinitiatedtheemergenceoftheCentralEuropeanFreeTradeArea(CEFTA).ThepaceofliberalizationofagrariantradewithinCEFTAwasnotasdynamic,asitwas in thecaseof theV4 tradewith theEU15. InMay2004 theV4countries becameEUmembers. TheEU accessionbrought about verysignificant changes in agri‐trade for individual countries. The CzechRepublic, Slovakia, Hungary andPoland became part of the EU singlemarket,andalltheobstacles limitingthemovementofgoodsbetweenthem and the EU countries up to that time, ceased to exist (Svatos,2008). Individual countrieshad to accept commonEU tariffs and alsoagreementssignedandacceptedbytheEUintheperiodbeforetheV4accession(Svatos,2009).Asaresultoftheirpositionswithnon‐EUtradepartners, from the aspect of the territorial structure of the V4 group,agrarian trade has been weakening. This development did, however,strengthen the positions of the older EU Member States as the mostimportantpartnersofCzechRepublicSlovakia,PolandandHungary.

TheabovementionedperiodhadasignificantimpactonindividualV4countriesagriculturalproductionandtrade.Individualcountriesfacedto changes in their economy and their own economy environmenttogether. Individual countries developed strong links in the case ofmutual cooperation both in the area of economy and in the area ofpolicy.TheyfoundedCEFTAasaninstrumentsupportingtheirmutualtradeandtheyalsofoundedVisegradgroupasaninstrumentsupportingtheirmutualpolitical,culturalandsocialcooperation.Individualcountriesareimportanttradeandeconomypartnersandtheyaresupporting(moreorless)eachother.ThemutuallinksamongVisegradcountriesrepresentan important part individual countries’ economy. Regardless their EUmembership, individual Visegrad countries are an important partnersforeachotherinallareasoftheireconomy–includingtheiragriculturalsector.


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Themain contributionof thepaper are identificantionof basicdevelopmenttrendsrelatedtoindividualV4countriesagrarianexport,import and trade balance value and structure development and theidentification of the most competitive items of individual Visegradcountriesmutualagrariantrade.

3. Methodologyandobjectives

The conducted paper is analyzing the mutual trade relationsexistingamongV4countries.Themainaimof thepaper is to identifychangesintheiragriculturalsectorwhichhappenedduringthemonitoredtimeperiodandtocomparedifferencesexistinginareaofagriculturalsectorandtradedevelopmentinthecaseofanalyzedcountries.Anotheraimofthepaper isrelatedtotheirmutualtraderelations. Inthiscasethepaper is identifyingbasictrends intheareaof individualanalyzedcountries’tradedevelopmentandmutualagrariantradecompetitivenessisalsoanalyzed.Themainideaofthispartofanalysisistoidentifytheimpactofpastyearsdevelopmentonmutualagriculturaltradedevelopmentandrelations.

The paper is divided into three basic parts. The first part of thepaperisanalyzingagriculturalsectordevelopmentinindividualVisegradcountries (agricultural production value and volume development,employmentinagriculturedevelopment,agriculturallandsizedevelopment,theshareofagricultureinindividualcountries’GDP).Thesecondpartofthe paper is analyzing individual Visegrad countries agricultural tradedevelopmentbothinrelationtotheEUandtherestoftheWorld.Thelastpart of the paper is analyzing mutual agricultural trade developmentexistingamongindividualVisegradcountries.IndividualVisegradcountries’agricultural trade performance is analyzed both in relation to the totalVisegradmarketandinrelationtoindividualmembersofVisegradgroup.PaperisalsoanalyzingindividualVisegradcountries’agriculturalforeigntradecommoditystructure.ThecommoditystructureisanalyzedaccordingtotheSITC(StandardInternationalTradeClassification),rev.3nomenclature.ThebasicdivisionofagriculturaltradeaccordingtoSITCisthefollowing–forthepurposeofthispaperthecommoditystructureisdividedinto15sub‐groups.

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Table1:SITCrev.3Commodity

Code CommodityDescription Commodity

Code CommodityDescription S3‐00 LIVEANIMALS S3‐08 ANIMALFEEDSTUFF

S3‐01 MEAT,MEATPREPARATIONS S3‐09

MISC.EDIBLEPRODUCTSETC

S3‐02 DAIRYPRODUCTS, BIRDEGGS S3‐11 BEVERAGES

S3‐03 FISH,CRUSTACEANS,MOLLUSC S3‐12

TOBACCO, TOBACCOMANUFACT

S3‐04 CEREALS,CEREALPREPRTNS. S3‐41

ANIMALOILSANDFATS

S3‐05 VEGETABLESANDFRUIT S3‐42 FIXEDVEG.FATSANDOILS

S3‐06 SUGAR,SUGR.PREPTNS,HONEY S3‐43

ANIMAL, VEG.FATS,OILS,NES

S3‐07 COFFEE,TEA,COCOA,SPICES

Source:UNComtrade,2014

ThepaperisanalyzingindividualVisegradcountriesagriculturalproduction and trade performance and competitiveness in the period2000–2012.Individualtimeseriesareanalyzedthroughthebasicandchainindices(theaveragevaluesofinter‐annualgrowthraterelatedtoindividual countries’ characteristics are analyzed through thegeomean).Individual countriesare compared to identify changesexistingamongthem.Except for individual countries exportand importperformance,the paper is also analyzing the Visegrad countries mutual tradeperformance and theirmutual trade relations. The paper is analyzingespeciallymutualVisegradcountriesagriculturaltradecompetitiveness.

The competitiveness analysis of individual Visegrad countriesforeign trade is realized through the two indices ‐ Balassa index andLafay index of “revealed” comparative advantage. These indices areselectedforthisstudyforthefollowingreasons.Firstly,theyallowustoconduct the competitiveness analysis using available data. Secondly,these indices complement each other. Balassa index (Balassa, 1965)estimates export flows competitiveness of individual V4 countries inrelation totheEU, therestof theworldandtheVisegradmarket.The


27

Lafay (Lafay, 1992) index can be used for bilateral trade relationscompetitivenessexistingdirectlyamongindividualV4countries.TheBalassa index tries to identifywhetheracountryhasa “revealed”comparative advantage rather than to determine the underlyingsources of comparative advantage (Qineti, Rajcaniova, Matejkova,2009).Theindexiscalculatedasfollow.

)//()/()//()/( ntitnjijntnjitij XXXXXXXXRCA (1)

wherexrepresentsexports,iisacountry,jisacommodityandnisasetof countries, t is a set of commodities. RCA is based on exportperformance and observed trade patterns. It measures a country’sexports of a commodity relative to its total exports. If RCA>1, then acomparativeadvantageisrevealed.

ThenextindexisLafayindex.Lafayindexisveryusefulinstrumentfortheanalysesoftradecompetitivenessbetweentwocountries.Usingthis indexweconsider thedifferencebetweeneach item’snormalizedtradebalanceandtheoverallnormalizedtradebalance(Zaghini,2003).For a given country, i, and for any given product j, the Lafay index isdefinedas:

N

l

ij

ij

ij

ij

N

j

ij

ij

N

j

ij

ij

ij

ij

ij

iji

j

mx

mx

mx

mx

mx

mxLFI

11

1

)(

100(2)

where xij and m ij are exports and imports of product j of country i,towards and from the particular region or the rest of the world,respectively,andNisthenumberofitems.PositivevaluesoftheLafayindexindicatetheexistenceofcomparativeadvantagesinagivenitem;the larger the value the higher the degree of specialization. On thecontrary,negativevaluespointstode‐specialization.(Zaghini,2005)

4. Visegradcountriesagriculturalproduction

ThefollowingpartofthepaperprovidesabriefoverviewofthelasttwodecadesdevelopmentonagricultureandespeciallyagriculturaltradeofVisegradcountries.IfweareanalysingthestructureofindividualVisegradcountries’ economy,wecan see thatagricultureonlyplays aminorrole.Theshareofagricultureinindividualcountries’economyis

LUBOŠSMUTKA

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steadily decreasing. The current share is less than 4% (in the CzechRepublictheshareofagricultureinGDPisthelowest(1.7%),andcontraryinSlovakiatheshareofagricultureintotalGDPisthehighest–almost4%.

Agricultural land represents a large proportion of total land inanalyzedcountries.TheshareofagriculturallandisthehighestinHungary(63%),andthelowestinSlovakia40%.TheshareofagriculturallandintotallandisquitestableintheCzechRepublicandinHungary,howeverinPolandandSlovakiaithasbeendecliningoverthelasttwodecades.

Employmentinagricultureislowintheanalyzedcountries.Theshareofpeopleworkinginagriculturalsectorhasbeensteadilydecreasingineachoftheanalyzedcountries.ThelowestshareofpeopleworkinginagricultureisintheCzechRepublic(3.1%)andSlovakia(3.2%)andontheotherhandthehighestshareisinPoland(12%).

AgricultureintheindividualVisegradcountriesisbecomingmoreandmoretive.Thevalueaddedgeneratedbytheagriculturalsectorhasbeenconstantlygrowing–theonlyexceptionistheCzechRepublic.TheaveragevalueofinterannualgrowthrateofagriculturalvalueaddedispositiveinthecaseofHungary,PolandandSlovakia(fordetailsaboutagriculturaladdedvaluedevelopmentpleaseseetheTables2and3).

Table2:Agriculture,valueadded(constant2000US$)

Source:WDI,2014

TheproductivityofagricultureperworkerisincreasingineachoftheVisegradcountriesstudied.TheaveragegrowthrateofrealagriculturaladdedvalueinindividualVisegradcountriesis:Slovakia(5.6%ayear),Hungary (5.4%a year), Poland (3.1%a year) and theCzechRepublic(1.55%ayear).(Seetable3)


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Table3:Agriculturevalueaddedperworker(constant2000US$)

Source:WDI,2014

Thevolumeofagriculturaland foodstuffproduction in individualVisegrad countries decreased during the period 1993–2010, the onlyexception is Poland. Table 4 provides detailed information about thevolumeofagriculturaland foodstuffproduction in individualVisegradcountries. In the caseof theCzechRepublic thevolumeofproductiondecreasedbymore than36%. InHungary the current volumeof foodproduction is at the same level as in 1993, but if we take intoconsiderationthepeakleveloffoodproductionin2001,wecanseethatthecurrentproductionvolume is lowerby21‐22%.Slovakianvolumeof foodproductiondeclinedduring the analyzed timeperiodbymorethan30%,andonlyoneVisegradcountry(Poland)wasabletokeepthelevel of food production stable during the last twenty years. If weexaminetheindividualcountriesfoodandagriculturalproductionmoreindetail,wecanseethatbothsegments–animalandcropsproduction‐ofagriculturalproductionwereheavilyaffectedduring the lastnearlytwentyyearsdevelopment.

Table4:Agriculturalproductionindex(2004‐2006=100)

Source:WDI,2014

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While the level of production in individual analyzed countrieswasreducedsignificantly(theonlyexceptionbeingPoland),thelevelofdomesticconsumptionchangedonlyalittleduringthewholemonitoredtimeperiodineachcountrystudied.

Asignificantdecreaseofproductionvolumeincomparisonwithdomesticconsumptionvolumedevelopmentaffectedthelevelofagriculturalmarket self‐sufficiency level in the individual analyzed countries. Thechanges inagriculturalproductionvolume,apparent in themonitoredtimeperiod,hadadirectimpactonagriculturaltradevalueandvolumedevelopment.ThefollowingsubchapteranalyzesthevalueandvolumeofindividualVisegradmembers’agriculturaltradedevelopment.Tradedevelopment is analyzed in relation to theEUmarket, third countries(countriesoutsideofEU)andalsoinrelationtotheVisegradcountriesmutualtrade.

5. Developmentand structureofmerchandise tradeof theVisegradgroupcountrieswithafocusonagriculturaltrade

The countries of theVisegrad group are representatives of thenewmembercountriesoftheEU.Ageneralcharacteristicofsuchcountriesistheirverysignificantorientationtowardforeigntrade,whichisprimarilysignificantinthecaseoftheCzechRepublicandSlovakia,aswellasinthecaseofHungary.Polandalsolikewisesignificantlyengagesinforeigntradeactivities,butnevertheless,theshareofforeigntradeinthePolishGDPissignificantlylowerincomparisonwiththeshareofforeigntradeintheGDPoftheCzechRepublic,SlovakiaandHungary. IfweanalyzethecommoditystructureofmerchandisetradeoftheV4countries,wefind that it is dominated by trade in processed industrial products.Further,itisalsoimportanttostatethattheactualterritorialstructureof goods trade of the V4 countries is distinctly oriented toward EUcountries.AnotherinterestingfindingthatpertainstothedevelopmentofgoodstradeoftheVisegradgroupcountriesisalsothefactthattheaverage year‐on‐year rate of growth of merchandise trade of the V4countries significantly exceeds both the average year‐on‐year rate ofgrowthoftheworldmerchandisetrade,aswellastheaverageyear‐on‐yearrateofgrowthofgoodstradeofEUcountries.


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Table5:Developmentofvalueandstructureofforeigntrade(export)ofVisegradgroupcountriesintheyears2000–2012

Source:Comtrade,ownprocessing,2014

Table6:Developmentofvalueandstructureofforeigntrade(import)ofVisegradgroupcountriesintheyears2000–2012


In relation to the position of agricultural trade of the Visegradgroup countries within the overall goods trade, it may be stated thatlikewise as in the case of the global and Europeanmarket, agriculturaltraderepresentsonlyasupplementtogoodstrade(lessthan10%oftotaltrade). In this regard, it is important to state that the value of bothagriculturalexportsaswellasimportsoftheV4countriesisdynamicallyincreasing.Justintheyears2000‐2012,thevalueofagriculturalexportoftheV4countriesincreasedfromUSD6billiontomorethanUSD40billion,andinthecaseofagriculturalimport,therewasanincreaseinthetradedvaluefromUSD6billionto33billion.Intermsoftheirowndevelopmentofagriculturaltrade,theV4countriesachieve,otherthancertainexceptions,apositivebalanceofagricultural trade.Nevertheless, it isappropriate tostate that currently, such positive balance is fully to the debit of theagricultural tradeofPolandandHungary,while theagricultural tradeofthe Czech Republic and Slovakia regularly finishes in negative values. AfurthersignificantcharacteristicofagriculturaltradeoftheV4countriesisitsdistinctorientationtowardthemarketofEUcountries.

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AspecificcharacteristicofmerchandisetradeoftheV4countriesis the competitiveness of trade transactions, both in relation to themarketoftheEUcountries,aswellasinrelationtothemarketofthirdcountries. Inthisregard, it isappropriatetoemphasizethatcurrently,in terms of the development of the value of realized trade flows, theimportantthingisprimarilytheabilitytoretaincomparativeadvantagesinrelationtotheEUmarket,whichrepresentsthemainoutletforexportsoriginatingfromV4countries.

Asregardsagriculturaltrade,therewecanstatethatCzech,SlovakandHungarianagriculturaltradeiscurrentlyuncompetitive,bothinrelationtotheEUmarket,aswellasinrelationtothemarketofthirdcountries.Nevertheless,inthecaseofPoland,thesituationistheopposite.Polishagriculturaltradeiscapableofachievingcomparativeadvantages,and,importantly–itisalsocapableofamplifyingthem.

Table7:CompetitivenessofcommoditystructureofgoodstradeofV4countriesinrelationtotheEUmarketandtotheglobalmarket


6. MutualagriculturaltradeofthecountriesoftheVisegradgroup

ThefollowingtextfocusesonadetailedanalysisofthecommoditystructureandterritorialstructureofagriculturaltradeoftheV4countries.TheleaderoftheagriculturalmarketoftheV4countriesisundoubtedly


33

theCzechRepublic,which(inperiod2000–2012)participated inthetotalagriculturaltraderealizedwithintheV4countrieswithashareofover30%.ThesecondplaceisthenheldbySlovakia–which,bywayofintensiveexchangerealizedbetweenitandtheCzechRepublic,participatesinthetradeturnoveroftheterritoryoftheV4withashareofapproximately28%.PolandparticipatesintheturnoverofagriculturaltradewithintheterritoryoftheV4countrieswithashareofapproximately24%andHungaryparticipateswithashareofapproximately16%.

ThedatasetoutinTable8showsthatthevalueofmutualtradeamongtheV4countriesisgrowingdynamically.

Table8:CommoditystructureofagriculturaltradeofV4countries


Only in theyears2000–2012, thevalueofmutualagriculturaltraderosefromapproximatelyUSD1.1billiontoalmostUSD10billion– which shows an exceptional growth rate of mutual trade, whichrangedaroundalevelofapproximately20%withinthemonitoredperiod.IfwelookatthecommoditystructureofmutualagriculturaltradeoftheV4countriesindetail,wefindthatthisstructureisdominatedprimarilyby

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trade in the following aggregations: grains, vegetables and fruit,milkanddairyproducts,meatandmeatproducts,stimulantsandbeverages.Further,intermsofthedynamicsofgrowthinvalue,themostdistinctlygrowing aggregations include the following:meat andmeat products,sugar and candy products, live animals, milk and dairy products andvegetableandanimalfatsandoils.

The following Tables 9 and 10 provide an overview of thedevelopment of export, import and the balance of agricultural tradecarriedoutonthemarketoftheV4countriesinthecaseoftheindividualmonitored countries. The tables show the especially bad situation ofSlovakia,whichhasalong‐termnegativebalanceinthecaseofagriculturaltradeinrelationtotheterritoryoftheV4countries. InthecaseoftheCzech Republic and Poland, on the other hand, a positive balancepredominates. In the case of Poland, this is caused by substantialcomparativeadvantagesprimarilyinrelationtotheCzechRepublicandSlovakia.InthecaseoftheCzechRepublic,thepositivebalancewithinthe territory of the V4 countries is caused by a distinctly positivebalanceinrelationtoSlovakia.

Table9:PositionofindividualmembercountrieswithinagriculturaltradecarriedoutamongtheV4membercountriesthemselves



35

Table10:Mutualagriculturaltradeflows–territorialstructure–in2012(Mil.USD)

Source:Comtrade.ownprocessing.2012

The last part of this sub‐chapter provides an overview of thedistribution of comparative advantages on a bilateral level amongindividual countriesof theVisegradgroup, specifically in termsof theindividualtradedaggregations.Aswasstatedabove,agriculturaltradeasawholeholdscomparativeadvantagesinrelationtoglobalmarketsonlyinthecaseofPolandandHungary.InrelationtothemarketoftheV4 countries, only the agricultural trade of Poland has comparativeadvantages as a whole, and in some years, also Hungarian agriculturaltrade. Agricultural trade of the Czech Republic and Slovakia as awholedoesnothave comparative advantages even in regard to theglobal andEuropeanmarket, oreven in relation to themarketof theV4 countries.Nevertheless,itisappropriatetostatethatagriculturaltradeasawholeisgrowinginthecaseofalloftheV4countries,andnotonlyinthecaseofimports, but also in the case of exports. Those are, in the case of theCzechRepublic,growing17%annuallyonaverage,andbynearly22%in thecaseofSlovakia.Theabove thusclearlyproves theexistenceofcomparative advantage ‐ if not on the level of overall agricultural trade,thenat leastonthe levelof individualaggregations,whichrepresentthemotorfortheactualgrowthofrealizedagriculturaltrade.

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Table11providesanoverviewofthedistributionofcomparativeadvantages in the case of individual aggregations traded between themonitored countries mutually. In the case of each of the monitoredcountries, there are45 flowsmonitoredwithin15aggregations realizedbetweenthegiveneconomyanditsthreepartners.

Table11:LFIIndex–ComparativeadvantagesofagriculturaltradeamongindividualV4countriesatthelevelofindividual

aggregationsrepresentingagriculturaltrade



37

Theresultsshow(fortheyear2012)thattheCzechRepublichas,inrelation toHungary, comparativeadvantages in the caseof7monitoredaggregations, in the case of 6 aggregations in relation to Poland, and inrelationtoSlovakiathereare10competitiveaggregations.Slovakiahas,inrelationtoHungary,comparativeadvantagesinthecaseof8aggregations,in the caseof7 aggregations in regard toPoland, andSlovakia achievescomparative advantages in the case of 5 aggregations in relation to theCzechRepublic.Hungaryachievescomparativeadvantages inrelation tothe Czech Republic for 8 aggregations, for 7 aggregations in relation toSlovakia, and there was a comparative advantage for 7 aggregations inrelationtoPoland.PolishagriculturaltradeinrelationtotheV4countriesachievescomparativeadvantages inthecaseof theCzechRepublic for9aggregations, for 8 aggregations in the case of Slovakia, and forapproximately9aggregationsinthecaseofHungary.

7. Conclusions

On the basis of the above findings, it is shown that agriculturaltradeinthecaseofallof thecountriesof theVisegradgrouprepresentsonlyamarginalpartofthetotalmerchandisetrade.Further,inregardtotheagriculturaltradeoftheindividualanalyzedcountries,itmaybestatedthat the commodity structure aswell as the territorial structure is verysignificantlyconcentrated.Thepredominantmajorityofagriculturaltrade–exportaswellasimport–iscarriedoutinregardtoEUcountries.Suchcountriesparticipateintheagriculturaltradeoftheindividualcountriesofthe V4 group at a rate of over 80%. Third countries represent only amarginalmarketinregardtothesaleofagriculturalproductsfromtheV4countries, and their position is slightly more significant in relation toagricultural importsprimarilyof tropicalandsubtropicalproductsgoingontothemarketsoftheV4countries.InregardtotheterritorialstructureoftheagriculturaltradeoftheV4countries,itmaygenerallybestatedthatitisrelativelystableintime.

In relation to the development of the commodity structure ofagricultural trade, itmaybestatedthat thevolumeandvalueoftraderealizedwithinthemajorityofgoodsaggregationsisgrowingonalong‐termbasisinthecaseofalloftheV4groupcountries.Nevertheless,itisappropriatetostatethatthemostdynamicgrowthwasseeninthecaseofPoland.CzechandSlovakagricultural tradealsoshowedconsiderable

LUBOŠSMUTKA

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growthintermsofrealizedtrade;however–onlyinthecaseofPolandwas the growth in the dynamicity of exports so substantial that theresulting balance of Polish agricultural trade moved from negativevaluestopositivevalues.AspecificcountryintermsofthedevelopmentofthecommoditystructureandthevalueofagriculturaltradeisHungary.Atthebeginningofthemonitoredperiod,itwastheonlycountryoftheV4 group with a positive balance in agricultural trade. Nevertheless,structural problems of the Hungarian economy also led to significantproblemsintheareaofthedevelopmentoftheagriculturalsectorandagriculturaltrade.Theresultisthegradualreductioninthefieldofthedevelopment of a positive balance of the Hungarian agro‐trade and adecline in the importance of the agricultural sector – or agriculturaltrade–asasignificantsourceofthepositivetradebalanceofHungarianmerchandisetrade.

If we focus on the actual objective of the article, which was toidentify the comparative advantages of agricultural trade of the V4countriesintheareaofcommoditystructureandterritorialstructure,bothinrelationtotheglobalmarket,aswellasinrelationtotheEUcountries,andalsoinrelationtothe“owninternalmarket”oftheV4groupcountries– all of which is for the purpose of ascertaining the most significantchanges that occurred in the field of agricultural trade of the individualcountrieswithin theyearsof2000–2012, the followingmaybe stated.AgriculturaltradeoftheCzechRepublic,SlovakiaandHungaryasawholedoesnothavecomparativeadvantageseitherontheglobalmarketoronthe internal market of the EU countries. However, Poland as the onlyrepresentativeof theV4countriesdoeshavecomparativeadvantages inthefieldofagriculturaltrade,bothinrelationtotheinternalmarketoftheEUcountries,aswellasinrelationtotheglobalmarket(tothemarketofthird countries). If we focus further on the distribution of comparativeadvantages within the mutual trade of the V4 countries (The mostcompetitive aggregations of individual analysed countries within V4marketarethefollowing:CzechRepublic(S3‐00,S3‐03,S3‐04,S3‐08,S3‐09),Slovakia(S3‐00,S3‐02,S3‐04,S3‐06,S3‐07),Hungary(S3‐05,S3‐08,S3‐11,S3‐12,S3‐42)andPoland(S3‐01,S3‐02,S3‐03,S3‐05,S3‐07,S3‐09,S3‐12).)–wecanstatethatPolandclearlydominates.HungarianexportisalsocapableofgainingcomparativeadvantagesinsomeyearsinrelationtothemarketoftheV4countries.However,CzechandSlovakagriculturaltrade as awhole is profiled asuncompetitivewithin thewholeof thespaceoftheV4countries.Nevertheless, it isappropriatetoemphasize


39

thatalthoughCzechandSlovakagricultural trade, incomparisonwithHungarian and primarily Polish agricultural trade, appears to beuncompetitive, thevalueofbothagriculturaltradeoftheCzechRepublicas well as the agricultural trade of Slovakia is constantly increasing,both in relation to realized exports, as well as in relation to realizedimports. Primarily in relation to the growth of agricultural exports, itmaybe stated that theCzechRepublic andSlovakia, although theydonot have comparative advantages at the level of overall agriculturaltrade,arecapableofgainingatleastpartialcomparativeadvantagesatthelevelofindividualaggregationsrepresentingagriculturaltrade.

REFERENCES

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CIAIAN,P.,POKRIVCAK,J.2007:Agriculturereformsanddevelopmentineast‐centralEurope,in.Sergi,B.–Bagatelas,W.–Kubicova,J.(eds),IndustriesandmarketsincentralandeasternEurope,Ashgate,England.

CIAIAN,P., SWINNEN, J.F.M. 2006: ‘Landmarket imperfections and agriculturalpolicy impacts in the new EU member states: A Partial equilibriumanalysis’.AmericanJournalofAgriculturalEconomics.Vol.88,No.4,pp.799‐815.

DRABÍK, D., BÁRTOVÁ, L., 2008: An Assessment of the Impact of the EUEnlargementonAgri‐foodTradeofNewEUMemberStates.SPU,Nitra,2008.

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ZAGHINI, A. 2005:Evolution of tradepatterns in thenewEUmember states.EconomicsofTransition.Vol.13,No.4,pp.629‐658.

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TRANSPARENCY–AREQUIREMENTFORMARKETDISCIPLINEINTHELIGHTOFPRIOR

RESEARCHLITERATURE

CRISTINAALEXANDRINASTEFANESCU1

ABSTRACT.Ourpaperapproaches“transparency”asarequirement formarket discipline from a different perspective – the researchers one ‐presenting an overview image of the economic theories derived fromthese concepts, by analyzing and discussing positive arguments andnegative reasons for improving transparency, highlighting as well itsbeneficial consequences identified along time,which is important to allresearchersinterestedonit..Themainreasonoffocusingourresearchin this area was the continuously increasing importance given totransparency and disclosure, as a consequence of the most recentlycorporate failures and accounting scandals, not only among regulatoryauthorities and at companies’ level, but in academic environment, too,where we have assisted at an increasingly interest in identifying andassessing their causes and effects. Thus, our paper provides a differentapproach, by focusingupon the trendof research studies ondisclosureand transparency in a particular economic field, the banking one, thusofferingaqualitativeanalysisofpriorempiricalevidences.

Keywords:marketdiscipline;transparency;disclosure;banking

JELClassification:M41,G30

1. Introduction

Becausebankingenvironmentwasnegativelyaffected for severaltimesalongtime,manystudieshavebeenconductedwiththepurpose

1Babeş‐BolyaiUniversity,Cluj‐Napoca,Romania,FacultyofEconomicsandBusinessAdministration,Accounting and Audit Department, Teodor Mihai Street, no.58‐60, 400591, Cluj‐Napoca,Romania,Tel:+40264418654,E‐mail:[email protected]

CRISTINAALEXANDRINASTEFANESCU

42

ofidentifyingthemaincauses,searchingforpossiblesolutioninorderto prevent it, but unfortunately, without guaranteed results. Priorliterature reveals that among themain causal factors of the financialdistress is“theabsenceofeffectivemarketdisciplineagainsthazardousbankbehaviorduepartlytothelackoftransparencyandthedisclosureofrelevantinformation”(Llewellyn,2002).

Transparency, asused in thehumanitiesand ina social contextmore generally, implies openness, communication, and accountability.Itisametaphoricalextensionofthemeaninga"transparent"objectthatcanbeseenthrough.Inbusinessenvironment,transparencyisrelatedtothe extent to which investors haveready access to any requiredfinancial information about a company such as price levels, marketdepthandauditedfinancialreports.Classicallydefinedaswhen"muchis knownbymany", transparency is one of the silent prerequisites ofanyfreeandefficientmarket.Whentransparencyrelatestoinformationflowfromthecompanytoinvestors,itisalsoknownas"fulldisclosure".

In financial system, according to the Basel Committee on BankingSupervision, transparency is defined as “the public disclosure ofreliableandtimelyinformationthatenablesusersofthatinformationtomakeanaccurateassessmentofabank’s financial conditionandperformance,businessprofile,riskprofileandriskmanagement”(BIS,1998,para.6).

Market discipline plays an important role in banking system, bysafeguardingitsfinancialstability.Thus,itsmaindutyistoalleviatethebanks’ moral hazard problems that might arise because of the riskynature of banking activitymainly characterized by collecting depositsandinvestingtheseinloans,theeasiestwayofreducingtheincentivetotake excessive risk being to make risk‐taking more costly (Nier andBaumann, 2006).But, this isnot as simply as it seemsbecauseof thecomplexityofmarketdisciplineprocessthat leadstoacomprehensivetheoryaboutwhomandhowmighteffectivelyensureit.

Basing on this background, our paper proceeds as it follows:Firstly,webrieflyreviewprior literatureconcerningmarketdisciplineand transparency theories. Then, we provide information about ourresearch design, pointing out both the objective of this study and theresearch methodology used. After following the qualitative analysis

TRANSPARENCY–AREQUIREMENTFORMARKETDISCIPLINEINTHELIGHTOFPRIORRESEARCHLITERATURE

43

proposed,mainlyfocusedonanalyzinganddiscussingpositiveargumentsandnegativereasonsforimprovingtransparency,highlightingaswellitsbeneficialconsequencesidentifiedalongtime,weendedourstudythroughconcludingremarks,limitationsandperspectivesforfutureresearch.

2.Literaturereviewuponmarketdisciplineand transparencytheories

The first theoretical framework of market discipline in banking

environmentwasdevelopedatthebeginningof1990’s(Berger,1991).Itsbasicsconsistnotonlyofthemarketparticipantsthatmightbeabletoexert it (depositors, subordinateddebtholdersandequityholders)butespeciallyoftherequirementsupontheinformationstructure(theright information condition, the right time condition and the rightparticipantcondition).

Alongtime,variousresearcherstriedtobringvalue‐addedtothistheorybyintroducingnewtypesofconditionsbesidesthoserelatedtoinformation (Lane, 1993), extended the theoryby interplaying itwiththeregulatorydiscipline(Crockett,2002),byaddingnewconditionsoninformationstructure,asthecost‐benefitone(DeCeusterandMasschelein,2003) or by rethinking it and summarizing through a different shape(Hamalainenetal.,2005).

Thus, two different stages that drive the process of marketdiscipline of banks have been identified (Bliss and Flannery, 2002;Flannery, 2001), a brief history of the main steps in developing themarketdisciplinetheorybeingpresentedinTable1.

Table1.Summaryofdevelopmentsinmarketdisciplinetheory

Thefirstmarketdisciplinetheory

Berger(1991)

‐marketparticipants - depositors- subordinateddebtholders- equityholders

‐conditionsoninformationstructure

- therightinformationcondition- therighttimecondition- therightparticipantcondition


44

Developmentsofmarketdisciplinetheory:

Lane(1993) →opencapitalmarkets→nobailoutofinvestors→banksrespondingtomarketsignals

Thesewereaddedtothegeneralconditioncalled“Information”(consistedofthethreeconditionsoninformationstructuredefinedbyBerger(1991))

BlissandFlannery(2002)Flannery(2001)

→twophasesofmarketdiscipline:- marketmonitoring- marketinfluence

Thesegaveanewshapetothetheorybydividingmarketdisciplineprocessintotwostages

Crockett(2002)

→theabilityofprocessinginformation

ThiswasaddedtotherightparticipantconditiondefinedbyBerger(1991)

→complementarinessofregulatorydisciplineandmarketdiscipline

Thisextendedthetheorywithregulatorydisciplineissue

DeCeusterandMasschelein(2003)

→thecost‐benefitcondition(benefitsmustoutweighthecostsofmonitoringfortherightincentivestobepresent)

ThiswasaddedtotheconditionsoninformationstructuredefinedbyBerger(1991)

Hamalainenetal.(2005)

→opencapitalmarkets→information→rightparticipant→banksrespondingtomarketsignals

Redefinedallissuesdebatedbeforeintofourbasicconditions

Source:ownprojectionbasedonliteraturereview

In conclusion, so that a fully and effectivemarket discipline tooccur,fourconditionsmusttobemetandtwophasesmustbecomplete,whicharedetailedinTable2:


45

Table2.Fullydescriptionofthemarketdisciplineprocess

Stages Definition Conditions Definitionmarketmonitoring/therecognitionphase

theprocessbywhichinvestorsaccuratelyevaluatechangesinafirm‘sconditionandincorporatethoseassessmentspromptlyintosecurityprices

opencapitalmarkets

theexistenceofunrestrictedandefficientcapitalmarkets

rightinformationattherighttime

thepublicdisclosureofbankcapitalstructureandriskexposures

rightparticipant

marketparticipantsmustnotbelievethattheborrowerwouldbebailedoutinthecaseofanactualorimpendingdefault

marketinfluence/thecontrolphase

theprocessbywhichoutsideclaimantsinfluenceafirm‘sactions

banksrespondingtomarketsignals

banksmustrespondtomarketsignalsproducedintherecognitionphase,inamannerconsistentwiththeirsolvency

Source:ownprojectionbasedonliteraturereview(BlissandFlannery,2002Flannery,2001;Hamalainenetal.2005)

Thus,amongthebasicconditionsthatneedtobesatisfiedsothatmarketdisciplinetobeeffective,aspriorliterature(NierandBaumann,2006)highlighted, isthat“themarketmusthaveadequate informationtogaugetheriskinessofthebank”,whichactuallyleadstotheconclusionthatmarketdisciplinecanworkeffectivelyonlyonthebasisoffullandaccurateinformationdisclosureandtransparency.Goodquality,timelyandrelevant information needs to be available to all market participantsandregulatorssothatassetquality,creditworthinessandtheconditionoffinancialinstitutionscanbeadequatelyassessed.Thus,onlythroughenhanced transparency, market participants might impose marketdisciplineearlierandmoreeffectively,greatimportanceinthisrespecthavingboththeregulatoryenvironment(NierandBaumann,2006)andsupervisors’ information,especially forbanks thatwerenot forthcomingintheirpriordisclosures(Jordanetal.,2000;BlissandFlannery,2002).


46

Accordingtopriorstudies,themostprominentwayofincreasingthetransparencyoffinancialinstitutionsisthedisclosureofinformationinpublishedreports.This inevitable lead to the followingquestion:“Willdisclosurereallybeabletoimprovetransparency?”.

Thiscontroversialquestionstoodatthebasisofvariousresearchesalongtime,thusleadingtotwoconflictingtheories(seeFigure1)abouttheconsequencesofgratertransparency(Tadesse,2006):

- “transparency‐fragility”theory,whichstatesthatgreaterdisclosuremayengenderbanking‐system instabilitybecause itmay lead toprojection of information about problems of specific banks asindicatorofwidespreadproblemsinthebankingsystem,therebyleadingtobank‐runsorstockmarketcollapse;

- “transparency‐stability” theory,which states thatgreaterdisclosureandtheconsequenttransparencyfacilitatetheefficientallocationofresourcesbyimprovingmarketdisciplineviareducinginformationalasymmetryandenablesearlydetectionofweakbanksbeforetheydrag the entire banking system into crisis, by rewarding strongbanksfortheirriskmanagementandperformanceandpenalizingweakbankswithhighercostsofraisingcapitalanddeposits.

Negativeimpact ← improvingdisclosure

→ Positiveimpact

↓ ↓ ↓‐depositorruns‐collapseofstockprices

enhancingtransparency

bettermonitoringbysupervisors

↓ ↓ ↓thelackofinvestorconfidence→widespreadbankfailures

NO→

ensuringmarketdiscipline

YES←

stabilityandsoundnessofbankingsystem

↓ ↓

transparency‐fragility”theory

“transparency‐stability”theory

Figure1.ThetwofacesoftransparencySource:ownprojection


47

Consideringthetwooppositesfacesoftransparencythefollowingquestion aroused and does not received a clear answer yet: “Shouldbank informationbedisclosed to thepublic?… If so, towhat extent?…Why?…How?…andtowhom?”

3. Researchdesignandresults

Theobjectiveofourpaperistoprovideanoverviewofinternationalresearchfocusedontransparencyanddisclosure,bydiscussingamongthepositiveargumentsandnegativereasonsforimprovingtransparency,highlighting as well its beneficial consequences identified along time.Forachievingourgoal,weselectedasampleofpapers,appreciatedasthemostrelevantforacademicresearchinourfieldofinterest.

Theresearchmethodologyusedforachievingourgoalisthereforebasedonaliteraturereviewofasignificantnumberofresearchpaperspublishedinvariousjournalsindexedinthemostwell‐knowninternationaldatabases.Thus,ourstudycomprisesaqualitativeanalysiswhichrevealsthe evolution of the state of research in the area of disclosure andtransparencyissuesoverthetime,pointingoutthemostrelevantconclusions.

Forperformingtheproposedanalysisofempiricalresearchinordertoofferthemostaccuratepictureofthepastandtohighlightpossibleideasforfuturestudies,firstlywesearchedinthemostwell‐knowninternationaldatabases (including Business Source Complete, Cambridge JournalsOnline,OscoHostEJS,Emerald,Informaworld,IngentaConnect,ISIWebofKnowledge,ISIWebofScience,Jstor,Proquest,ScienceDirect,Springer,WileyOnlineLibrary)forthosepapersthatreportfindingson“pro’s”and“con’s”forincreasing transparency and its consequences.Our searchwas based ondifferentcombinationsofthewords“disclosure”,“transparency”,“marketdiscipline”and“bank/banking”onpapers’title,ABSTRACT.andkeywords.Thesearchesyieldedatotalof89papers,fromwhichweretainedforouranalysisjustthosepapersthatprovideevidenceonourresearchtopic.

3.1. Qualitativeanalysisuponarguments“pro”and“contra”improvingtransparency

Improvedtransparencybringsadvantagestoallpartiesinvolvedinbankingenvironment,byprovidingadiscipliningmechanismwhereby


48

bankswhoseperformanceorriskprofile isconsidered inadequatecanbesanctioned,whilebankswhoseperformanceorriskprofile indicatesound management can receive incentives (Flannery and Sorescu,1996). Moreover, it ensures stability to the entire banking system byallowingbanksupervisorstoperformbettermonitoringforimpendingproblems, and hence enabling them to take earlierwealthy actions. Itmightincreaserisk‐managementabilitiesacrossthebankingsector,asbanks will not want to be viewed as inferior to other banks in thisrespect,whichitwill,inturn,createmorestabilitywithintheindustry,hence reducing systemic risk (Linsley and Shrives, 2005). Formarketparticipants,itimprovestheirabilitytomakeinformeddecisions,throughmoreaccurateassessmentofabank'sfinancialstrengthandperformance(OyamaandShiratori,2001).

Anyway,therearealsoarguments“contra”improvingtransparency,appreciatingthatitmaynegativelyaffectthefragilityofbankingsystem,especially in case of temporary problems that a bank might face up.Thus,thefollowingsituationsmightoccur:

- a contagious bank‐run; through great transparency depositorswelfaremightbereducesandasaconsequencetheymayoverreact,beingtemptedtowithdrawtheirmoney,thusincreasingthechanceofaninefficientcontagiousrunonotherbanks(ChenandHassan,2006).Consequently,fulltransparencyofbankrisks,couldleadtobankfailureviaincreasinginterestondepositsthatbankshavetopayintheriskierstate(CordellaandYeyati,1998);

- theimpossibilityofraisingthenecessarilycapital;incaseofproblems,shareholdersaswellmayoverreactandthismaycausethebank’ssharepricetoplummet(DeCeusterandMasschelein,2003)

Consequently, these situations, might occurs in case of financialproblemsdisclosure,thatmightleadeithertothebank’sfailurethroughabankrunortoanoverreactioninthefinancialmarkets, jeopardizingtheabilityofthebanktoraisecapital.Ifsuchcasesspreadtotheentirebanking system it results in a systemic failure, thus higher disclosurebecoming the cause of the collapse of a banking system, rather thanprovidingmarketdiscipline.

Themainreasonswhybanksmightbereticentinensuringhighertransparencycouldbeclassifiedatleastintothefollowingcategories:


49

- financial reasons; increasing transparency by providing a higherlevelofdisclosurealsoimpliesadditionalcoststoinstituteatimely,comprehensive and accurate system of information reporting,resourcesthatmightbemoreprofitablyemployedelsewherebeingthusdesignedtofulfilthisfunction;

- speculativereasons;byafullytransparentsystemofreporting,theabilityofbank’smanagementtoengageinselfdealingtransactionsmadetobringunfairadvantagestosomeparties,islimited;

- competitivereasons;usuallybanksadopttheirownstrategies,whichbecomemoretransparentincaseofhigherlevelofdisclosure,thusaffectingtheircompetitivestatusbyrevealingtheirvulnerabilities.

Inconclusion,consideringthatimprovingdisclosuremightbringbothbenefitsanddrawbacks,therehasbeenstatedthattransparencyisa preventive measure, which must be introduced when confidence isrisingandmarketreactionislikelytobebenign(Fons,1998).

3.2. Qualitativeanalysisuponconsequencesofincreasingthelevelofdisclosure

The main consequences of inadequate disclosure, resulting inpoor transparency and the absence of effectivemarket discipline,mightconsist of weak monitoring and supervision, thus leading to financialcrisis. Closely related to financial crisis there has been proved thatinappropriate informing increases funding costs, especially in times offinancial distress (Fons, 1998), enables banks to evade prudential andotherrestrictionsandcontributestothedepthandbreadthofabankingcrisis(Rahman,1999).Also,ithasbeenstatedthattransparencycanonlyhelptopreventafinancialcrisisanditshouldnotbeseenasacureforsystemsalreadyunderstress(Fons,1998).

Anyway, many other consequences of increasing the level ofdisclosurewereidentifiedandanalysedalongtime,suchas:- it might result in lower measures of stock volatility (Bauman and

Nier, 2004), due to disclosure’s ability to reduce themagnitude oftheimpactofnewsaboutafirm’sperformance(LangandLundholm,1993;BusheeandNoe,2000);


50

- it is likely to reduce information asymmetries in the market thatresultinpronouncedpricechangesinresponsetochangesindemandforthestock(Botosan,1997;DiamondandVerrecchia,1991);

- itpromotesasaferbankingsystem,by: improvingbankperformances(Podpiera,2006),increasingbanks’soundnessasaresultofregularlyand accurately data report (Demirguc‐Kunt, et al., 2008), boostingbanks'capitalpositions,particularlyincountrieswithmorecompetitivebankingsystems(NierandBaumann,2006),preventingbanksfromtakingexcessiverisks,asmarketdisciplinereducesthefundingbaseofimprudentbanks(Hirtle,2007);

- itattractsmore foreignportfolio investment (GelosandWei,2004),whichmight result in the reward of having lowerborrowing costs(GlennersterandShin,2004),corporatecreditspreads,particularlyforshort‐termbonds (Yu,2005)and transactioncosts, thus increasingtheliquidityofthestock(AmihudandMendelson,1986);

- it decreases the cost of equity capital (Poshakwale and Courtis,2005), because higher disclosure enables a better monitoring ofmanagers and increases the demand for the securities (Verrecchia,1988;Dye,1985;Diamond,1985;Benston,1986;FishmanandHagerty,1989) and leads tomore accurate analyst earning forecasts, withlesser dispersion among individual analyst forecasts and lowervolatility in forecast revisions (Lang and Lundohlm, 1993), all ofthese,actuallyleadingtoalowercostofcapital.

Duringthefinancialmeltdownwhichbeganlate2007,bothcapitalmarket and the bank regulatory authorities have called for enhancedtransparency,basingontheassumptionthatinappropriateandimproperlytimedinformationdisclosuremaymakethebankingsystemsensitivetosystemicshocks.

But, between the degree of disclosure and the net benefits oftransparencythereisaparticularrelationshipthatmightbetakenintoaccount.Thus,asthe levelandqualityof financialdisclosure increasesits benefits are rising, but only until a certain level, call the “optimalthreshold”.Afterreachingthispointthebenefitsofdisclosinginformationstart theirdecline, being lower than the cost attached toproducing it.Consequently,acost‐benefitanalysisisessentialwhendecidingupontheinformationtobedisclosed.


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4. Concludingremarks

Theconceptofmarketdisciplinecanbedefinedasaccountabilitythrough transparency. By accountability it is expected that bank’smanagementactsinthebestinterestsofoutsidestakeholders,whilebytransparencyitisexpectedthatabankdisclosessufficientinformationso as to allow these stakeholders to make informed judgments as towhetherthebankisactingintheirbestinterests.

Forthemarketdisciplinemechanismtooperateeffectively,itisthus imperative that stakeholders receive frequent, relevant andmeaningful information regarding the riskprofile andmanagementofbanks,andforthedisclosureofsuchinformationtobebothmandatoryandreasonablyconsistentacrossbanksandjurisdictions.

However, it is somehow natural to wonder: “Will disclosurereallybeabletoimprovetransparencyandenhancemarketdiscipline?”.Variousargumentshavebeenbroughtalongtimeinthisrespect,mostofthemleadingtocertainskepticisminthisrespect.Thus,firstly,highertransparency might be useless because banks are inherently opaqueinstitutions, and increases indisclosuremaynotbe able tomateriallychangethis(BaumanandNier,2004).Ontheotherhand,disclosureiscostly, and thus, for being justified it is expected that its costs, eitherthosedirectlyrelatedtoproducinganddisseminatinginformation,butalso the indirectones thatmightarisewhenabank’s competitorsareable toexploit the information that thebankprovides to the financialmarket, shouldbeoffsetbyproperbenefits (BaumanandNier,2004).Evidencesshowthatinvestorsarewillingtoacceptsomediscretiononthe part of managers to withhold a certain "threshold" quantity ofinformation (Verrecchia, 1983). Finally, a higher level of disclosuresmaynotnecessaryleadtotransparency,unlessitisdisclosureof‘useful’information (Linsley and Shrives, 2005), the following qualitativecharacteristicsthatcontributetotransparencybeingstated‐timeliness,comprehensiveness, reliability, relevance, comparability and materiality(BIS,1998,para.53).Consequently,suchargumentsgaveresearchersalotofpossibilities toapproachtransparencytopic,but therearemanyunexplored,yet.

Anyway, the qualitative analysis provided within this studyrevealasignificant“enrichment”ofdisclosurerelatedliterature,duetoa continuously increasing interest on this topicmainlybecauseof the


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latest financial scandals that led to the collapseofmany internationalrecognized companies, corporate governance failures due to lack oftransparencybeingoftenconsideredastheirmajorcause.

Likeanyother research,weareawareof the limitationsofourstudythatcomefromthesample'sdimensionmadeofselectivearticles,considered relevant for the performed analysis. But, these limitationsofferusoutlooksforfutureresearch,byextendingthesampleofjournalsandpapers included in analysis, consideringmore specific criteria forselectionthanthe“transparency”conceptasawhole.Also,theresearchmethodology might be improved by using comprehensive statisticalmethodsfortestingtherelationshipbetweentheestablishedvariables,whichisthemainpurposeoffuturestudies.

REFERENCES

AmihudY.andMendelsonH.(1986),“AssetPricingandtheBid‐askSpread”,JournalofFinancialEconomics,No.17,pp233–250.

Baumann,U.andNier,E.(2004),“Disclosure,Volatility,andTransparency:AnEmpirical Investigation into the Value of Bank Disclosure”, EconomicPolicyReview,Vol.10,No.2,pp.31‐45.

BaselCommitteeonBankingSupervision(1998),EnhancingBankTransparency,September,BIS.

BenstonG.J.(1986),“TheBenefitsandCoststoManagersofVoluntaryAccountingDisclosure”,ContemporaryAccountingResearch,Vol.3,No.1,pp.35–44.

Berger,A.N.(1991),“MarketDiscipline inBanking”,ProceedingsofaConferenceonBank Structureand Competition, Federal Reserve Bank of Chicago,pp.419–439.

BlissR.andFlannery,M.(2002),“MarketDisciplineintheGovernanceofU.S.BankHolding Companies:Monitoring vs. Influencing”,EuropeanFinanceReview,Vol.6,pp.361–395.

Botosan C.A. (1997), “Disclosure Level and the Cost of Equity Capital”, TheAccountingReview,Vol.72,No.3,pp.323–349.

Bushee,B.J.andNoe,C.F.(2000),“CorporateDisclosurePractices,InstitutionalInvestors,andStockReturnVolatility”, JournalofAccountingResearch,Vol.38,No.3,pp.171‐202.


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Chen,Y.andHasan, I. (2006), “TheTransparencyof theBankingSystemandthe Efficiency of Information‐Based Bank Runs”, Journal of FinancialIntermediationVol.15,No.3,pp.306‐331.

Cordella,T.andYeyati,E.L.(1998),“PublicDisclosureandBankFailures”,IMFStaffPapers45,pp.110–131.

Crockett, A. (2002), “Market Discipline and Financial Stability”, Journal ofBankingandFinance,Vol.26,No.5,pp.977–987.

DeCeuster, M.J.K. and Masschelein, N. (2003), “Regulating Banks throughMarketDiscipline:ASurveyoftheIssues”,JournalofEconomicSurveys,Vol.17,No.5,pp.749‐766.

Demirguc‐Kunt, A, Detragiache, E. and Tressel, T. (2008), “Banking on thePrinciples: CompliancewithBasel Core‐Principles andBankSoundness”,JournalofFinancialIntermediation,Vol.17,pp.511–542.

DiamondD.M (1985), “Optimal Release of Information by Firms”, JournalofFinance,Vol.40,pp.1071–1094.

Dye R.A. (1985), “Disclosure of Nonproprietary Information”, Journal ofAccountingResearch,Vol.23,No.1,pp.123–145.

FishmanM.J.andHagertyK.K.(1989),“DisclosureDecisionsbyFirmsandtheCompetitionforPriceEfficiency”, JournalofFinance,Vol.44,No.3,pp.633–646.

Flannery,M.J.andSorescu,S.M.(1996),“EvidenceofBankMarketDisciplineinSubordinated Debenture Yields: 1983–1991”, Journal of Finance, Vol.51,pp.1347–1377.

Fons,S.J.(1998),“ImprovingTransparencyinAsianBankingSystems”.Paperpresentedat ‘Asia:AnAnalysisofFinancialCrisisConference’ sponsoredbytheFederalReserveBankofChicagoandtheInternationalMonetaryFund.

Flannery, M. (2001), “The Faces of Market Discipline”, Journal of FinancialServicesResearch,Vol.20,pp.107‐119.

Gelos, G. and Wei, S.J. (2004), “Transparency and International PortfolioHoldings”,JournalofFinance,Vol.60,No.6,pp.2987–3020.

Glennerster,R.andShin,Y.(2004),“IsTransparencyGoodforYouandCantheIMF Help?”, Working paper 03/132, International Monetary Fund,Washington.

Hamalainen, P., Hall,M. andHowcroft, B. (2005), “A Framework forMarketDiscipline inBankRegulatoryDesign”, JournalofBusinessFinanceandAccountingVol.32,No.1‐2,pp.183‐209.

Hirtle, B. (2007), “Public Disclosure, Risk and Performance at BankHoldingCompanies”,FederalReserveBankofNewYorkStaffReports293.

Lane,T.D.(1993),“MarketDiscipline”,IMFStaffPapersVol.40,No.1,pp.53–88.


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Lang, M.H. and Lundholm, R.J. (1993), “Cross‐Sectional Determinants ofAnalystRatingsofCorporateDisclosures”,JournalofAccountingResearch,Vol.31,No.2,pp.246‐271.

Llewellyn,D.T. (2002), “AnAnalysisof theCausesofRecentBankingCrises”,JournalofFinance,Vol.8,No.2,pp.152‐175.

Linsley,P.M.andShrives,P.J.(2005).“TransparencyandtheDisclosureofRiskInformationintheBankingSector”,JournalofFinancialRegulationandCompliance,Vol.13,No.3,pp.205–214.

Nier, E and Baumann, U. (2006), “Market Discipline, Disclosure, and MoralHazard inBanking”, JournalofFinancial Intermediation,Vol.15,No.3,pp.332‐361.

Oyama,T.andShiratori,T.(2001),“InsightsintotheLowProfitabilityofJapaneseBanks:SomeLessons from theAnalysisofTrends inBanks’Margins”,BankExaminationandSurveillanceDepartmentDiscussionPaperSeries,01‐E‐l,BankofJapan,Tokyo.

Podpiera,R. (2006), “DoesCompliancewithBasel CorePrinciplesBring anyMeasurableBenefits?”,IMFStaffPapers53(2),pp.306‐326.

Poshakwale,S.andCourtis, J.K.(2005),«DisclosureLevelandCostofEquityCapital:EvidencefromtheBankingIndustry”,ManagerialandDecisionEconomics,Vol.26,No.7,pp.431‐444.

Rahman, M.Z. (1999), “The Role of Accounting Disclosure in the East AsianFinancialCrisis:LessonsLearned”,Geneva:UNCTAD.

Tadesse, S. (2006), “The Economic Value of Regulated Disclosure: Evidencefrom theBankingSector”, JournalofAccountingandPublicPolicy,Vol.25,No.1,pp.32–70.

Verrecchia, R. (1983), “Discretionary Disclosure”, Journal of Accounting andEconomics,Vol.5,pp.179‐194.


THEROLEOFPSYCHICDISTANCEONINTERNATIONALIZATIONPROCESSOFSMEsINTURKEY

SEVGIBAKAR1,NILAYBIÇAKCIOĞLU2,ÖZGEÖZGEN3

ABSTRACT.The purpose of this paper is to investigate the effect ofpsychicdistancefactorsoninternationalizationdecisionsofsmallandmedium‐sizedenterprises(SMEs).Particularly,thispaperoffersinterestinginsightsintotheliteraturebecauseofthelimitednumberofacademicstudiesrelatedtopsychicdistancefactorsinTurkeyandthepresenceofcontradictoryfindingsabouttheeffectofthesefactorsinliterature.This study takes into consideration all psychic distance indicatorswhichhavebeen found inearlier studiesand indicateshoweffectivethosefactorsareforSMEsinTurkeyasanemergingcountry.Theresultsof the empirical study confirm that psychic distance factors have animpactontheinternationalizationdecisionsofcompaniesandtheextentof impact of these factors vary considering internationalization degreeandnumberofcountriestheyoperate.

Keywords:PsychicDistance, Internationalization,SmallandMedium‐SizedEnterprises

JELclassification:M16,L25

1. Introduction

Intoday’sfast‐pacedandaggressivecompetitivebusinessenvironment,domestic companies, especially small and medium sized enterprises

1Res.Assist.,DokuzEylülUniversity,FacultyofBusiness,[email protected]

2Res.Assist.,DokuzEylülUniversity,FacultyofBusiness,DepartmentofInternationalBusinessandTrade,[email protected]

3 Assist. Prof., Dr., Dokuz Eylül University, Faculty of Business, Department of InternationalBusinessandTrade,[email protected]

SEVGIBAKAR,NILAYBIÇAKCIOĞLU,ÖZGEÖZGEN

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(SMEs)facethefactthatit isvitalandinevitabletointernationalizeinordertocompetewithmultinationalcompanieswhichdominatetheirhomemarket.However,therearemanydifficultiesofinternationalizationandSMEsmaycopewithamorecomplicatedandcompellinginternationalizationprocess because of having insufficient experience and resources. ForTurkey,duetothefactthatSMEsconstitute99%ofallenterprisesandcontribute59%oftotalexport,theirinternationalizationprocesscomesouttobeacrucialandcriticalissuetoanalyze(TUIK,2012).

Considering earlier studies carried out, some theories specifyinternationalization process of companies as a stepwise path, whichsuggestthatcompaniesinitiallyselectclosemarketstointernationalize,andthentheymoveforwardtomoredistantones.Uppsalamodelisoneofthemostprominentmodels,whichelaboratesthisgradualpatternofinternationalization (Johanson and Wiedershiem‐Paul, 1975). In thismodelsomeattributes,namedaspsychicdistancefactors,areassertedasdisturbing factorsaffectingunderstandingofbusinessenvironmentofforeignmarkets;thusleadcompaniestoselectcountrieswhichhavelowerpsychicdistanceat first rather thanmoredistantones.Yet thissuggestionisdisaffirmedbysomestudiesarguingthatpsychicdistancefactorsdonothaveconsiderableinfluenceoninternationalizationdecisions(Crick and Jones, 2000; Kontinen and Ojala, 2010;Moen and Servais,2002).Thedifferentandtwo‐sidedapproachesandfindingsofcurrentliterature and the fact that there is no consensus about the effect ofpsychic distance factors on internationalization are themotivation toanalyzethesituationforSMEsinoneoftheemergingmarkets,Turkey.Theaimofthestudyistoinvestigatewhetherpsychicdistancefactorshave any impact on the internationalization decisions at the level ofcompanies;besides if any, it is intended to findwhether theextentofimpact of these factors vary considering the international experienceandinternationalizationdegreeofcompanies.

2. LiteratureReview

Inrecentyears,companiesshowagraduallyhigherpropensitytoexpandintoglobalmarketstotakeadvantageofthegrowthopportunitieswithina competitivemarketplace. In this case, themost fundamentaldecisionofinternationalizationprocessisselectionoftherightmarket

THEROLEOFPSYCHICDISTANCEONINTERNATIONALIZATIONPROCESSOFSMESINTURKEY

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(Malhotraetal.,2009).Particularly,theperceptionofdecisionmakersaboutthecountrywillbeselectedmayhaveanimportantrolebeyondthe realities related to entry decision such as transportation costs orcompetitioninthatcountry.Forexample,Beckerman(1956),JohansonandVahlne(1977)revealedthatmanagers/exportersareaffectedbytheirperceptionswhiledecidingwhichforeignmarketisappropriatetoenter.Underthisargument,anewconceptcalledpsychicdistancehasemerged.

The term of psychic distance was first used in the literature byBeckerman(1956)inastudyabouttradeflowsamongEuropeancountriesand he refers this term to describe that some foreign markets areperceived to be closer than others. Then, the concept was developedandpopularizedbyagroupofscholarsatUppsalaUniversitytoexplaininternationalizationprocessofacompanyandidentifiedasadeterminantofinternationalizationbehavior(JohansonandVahlne,1977;JohansonandWiedersheim‐Paul,1975).JohansonandWiedersheim‐Paul(1975)definepsychicdistance as “factorspreventing the flowof informationbetween the company and the foreign market (e.g. differences inlanguage, culture,political systems, levelofeducationetc)”.AccordingtoUppsalainternationalizationmodel,companiestendtoenterforeignmarkets which are not psychically distant from home country. Theystart their foreign operations in countries which are less psychicallydistant and as they gain sufficient knowledge and experience, theysubsequentlypenetrate into the countrieswhicharemorepsychicallydistant(JohansonandWiedersheim‐Paul,1975).

Duringtheongoingdebateonpsychicdistance,scholarsbegantorevise their psychic distance definitions. For example, in the study ofNordstromandVahlne(1994,p.42),theydefinepsychicdistanceas“factorspreventingordisturbingcompanies’learningaboutandunderstandingaforeignenvironment”.Theirfocusoncompanies’comprehensionandlearning refer that considerationof individualswithin the company isparticularlyimportantwhenmeasuringpsychicdistanceduetothefactthat individuals’ decisions hold great significance to learn companies’internationalization behavior. In this context, the term of psychicdistance is required to change from an information flow perspectivewhichisbasedonthedifferencesinnationalleveltoaperception‐basedperspectivewhichshowstheimportanceofhowindividualsaffecttheircompanies’ internationalizationprocess.Thus, the conceptofperceptionhasbeenaddedtomanysubsequentstudies(Lee,1998;Stottingerand


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Schlegelmilch,1998;Swift,1999;EvanandMavondo,2002;EvansandBridson, 2005). Therefore, psychic distance can be redefined as theindividual’sperceiveddifferencesbetweenthehomeandhostcountry(SousaandBradley,2006).Takingintoaccountthatindividuals’perceiveddifferencesbetweenhomeandhostcountrybecomesespeciallyremarkableforSMEsduetothefactthattheyaredependentonowners/topmanagers’decisions in their internationalization process; the concept of psychicdistance takes an important place for market entry decisions in earlierstagesofinternationalizationofSMEs(Cicic,PattersonandShoham,1999).

When conducted studies are considered, contradictory findingsregardingtheimpactofpsychicfactorsoninternationalizationdecisionsofcompaniesappear.For instance, therearesomeotherempirical findingsrelated to insignificance of the psychic distance factors in theinternationalization process of companies. Moen and Servais (2002)foundthatpsychicdistancehasnoimpactontheexportmarketdecisionsofinternationalizingcompanies.Besides,accordingtoCrickandJones’sstudy(2000),growthopportunities,nichemarketsaremoreexploratorycomparedtopsychicdistancefactorsintermsofmarketchoice.However,Dow (2005) found that psychic distance perception has an effect onborn‐global companies rather thanglobal companies in termsof theirselectionofpsychicallyclosemarketsatfirst.HashaiandAlmor(2004)alsoclaimedthatborn‐globalcompaniesfollowagradualinternationalizationprocesswithregardtoenteringpsychicallyclosercountriesratherthandistantones.Moreover,ChettyandChampell(2004)investigatedtraditionaland rapidly internationalizing companies of New Zealand and theirfindingssupport thatcompaniesbehaveaccording topsychicdistancelogic by following a stepwise path and investing psychically similarcountriesinitially.

LieschandKnight(1999)mentionthatthemorepsychicallydistantthe market, the greater the uncertainty confronting the new entrant.ThisideaisderivedfromstudiesofJohansonandWiedersheim(1975)andJohansonandVahlne(1977)whichreveal thatmarketknowledgeandmarketexperienceareimportantforcompaniesregardingresourcecommitment and further investment. It was argued that when thecompanieshavesufficientexperiencerelatedtoaparticularmarketandget accustomed to business activities in this market; their level ofcommitment to thatmarket increase due to decreased perceived riskanduncertaintylevelthroughlearning.Thesmalleramountofperceived


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riskanduncertaintyreducespsychicdistancebetweenhomeandhostcountry.Inotherwords,whencompaniesstarttobemorefamiliarwithaspecificcountrythroughthegainedinternationalexperience,theyareencouragedtoenternewmarketsthatarepsychicallymoredistant.Inthiscontext, the followinghypotheseswereproposedtoexplainthattheimpactofpsychicdistancefactorsdiffersthroughinternationalexperiencewhichisafunctionofboththetimeanddiversityofoperations.

H1a:The impactofpsychicdistancediffers through thenumber ofcountriesoperatedH1b: The impact of psychic distance factors differs through theinternationalizationage

AccordingtoPapadopoulosandMartin(2010),internationalizationdegree shows the firm’s concentration to foreignmarkets in terms ofexport intensity. Additionally, Olejnik and Swoboda (2012) supportedthis view by identifying that the firms’ internationalization degree isrelated to their knowledge and understanding gained from foreignmarkets. By considering this relationship and taking into accountabovementioned link between international experience and psychicdistance factors; one can expect that there is an association betweeninternationalizationdegreeandpsychicdistancefactors.

H2: The impact of psychic distance factors differs throughinternationalizationdegreeofcompanies

3. ResearchMethodology

Inthisstudy,itispreferredtoconductasurveytotestmentionedhypothesesabove.Thesurveycomprisesoftwoparts.Inthefirstpart,itwasaimedtomeasuretowhatextentpsychicdistancefactorseffectSMEs’ internationalizationdecisions.Theliteratureofpsychicdistancefactors was searched and we reached a wide variety of scales andindicesabouttheoperationalizationoftheconstructinordertoformaquestionnaire measuring psychic distance factors (Bello et al., 2003;Boyacıgiller,1990;Brewer,2007;Childetal.,2009;DowandKarunaratna,2006;EvansandMavondo,2002;HakansonandAmbos,2010;Johansonand Wiedersheim‐Paul, 1975; Katsikeas et al., 2009; Klein and Roth,


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1990; Lee, 1998; Madsen, 1989; Shoam and Albaum, 1995, Sousa andBradley,2005).Subsequently,thescaleswhichareusedinmeasurementof psychic distance were examined and all items were integrated byeliminatingrepetitiveandresemblingitems.Consequently,aquestionnairewith 32 items using a 7‐point scale (from completely ineffective tocompletelyeffective)wasformed.Cronbach’salphaofthisscaleis0.93whichmeansahighinternalconsistency.Inthesecondpart,thequestionsaboutinternationalizationdegree,internationalexperienceanddemographicprofile were presented to respondents. Internationalization degree wasmeasuredwiththequestionofforeignsalesratio.Twoquestionswereasked to assess the level of international experience: the year whencompanieshavebeguntheirinternationalactivities(internationalizationage)and the totalnumberof countries theyoperate. ThequestionnairewasfirstlydesignedinEnglishandthentranslatedintoTurkishthroughback‐translationprocedure.

Insamplingprocess,listofSMEsengagedininternationalactivitiesin Izmir have constituted sampling frame. A company list was takenfromAegeanExportersAssociationandconveniencesamplingmethodwasusedtoselectsubjects.Insurveyimplementation,severalsurveysappliedviae‐mailsandcompanyvisitsweremadeforseveralotherstoincreaseresponserate.Totally123validquestionnaireswerecollected.

Studies and revisions about the definition of psychic distancegiverisetothealterationoftheunitofanalysisintheprocessofmeasuringpsychicdistance(Smithetal.,2011).Eventhoughtheappropriateunitof analysis formeasuring psychic distance consists of individuals, theconceptcomprisesbothnationalandindividualdeterminants(DowandKarunaratra, 2006; Smith et al., 2011). This study applied to exportmanagers/genaralmanagers/ownersofthecompanies.

4.Results

Thequestionnairewasfilledbydecisionmakersofinternationalizationprocess and as a result about 85% of the participants were generalmanagers,exportmanagersorownersofthecompanieswhichincreasestheaccuracy/precisionoftheanswers.Thesamplestructureconsideringaspectssuchastitleofrespondents,firmage,producttype,internationalizationage,totalnumberofcountriesoperatedispresentedinTable1.


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Table1.RespondentProfile

%

Titleofrespondents

Owner/Shareholder 40.7President/Vicepresident 5.7

Exportmanager 39.0Others 14.6

Firmage

0‐3years 7.34‐10years 23.611‐25years 47.2

26+ 22.0

ProducttypeIndustrialproducts 66.7Consumerproducts 33.3

Internationalizationage

0‐3years 18.74‐10years 36.611‐25years 37.426‐50years 6.5

Totalnumberofcountriesoperated

1‐5countries 35.06‐10countries 32.5

10+ 31.7

Foreignsalesratio

1‐10% 13.811‐25% 17.926‐50% 25.251‐100% 42.3

Data analysiswas conducted in three stages. At first stage, themeanratingmethodwasused.Inthiscontext,Table2showstheeffectof 32 psychic distance factors on internationalization decisions indescending order. According to this ranking, among all items, havingtradeagreement(µ=5.22),havingsimilarapproachesintheframeworkoftradeethics(µ=4.99)andconvenientlytoreachsecondaryinformation(µ=4.99) have the highest impact on internationalization decision. Itshouldbenoted that themeanscoreofoverall scalewas3.56and15items were under 3.56. Additionally, the respondents rated theirinterestinsportingactivitiesofhostcountryastheleasteffectiveitemintheirinternationalizationdecisions(µ=1.49).Eventhoughproxyculturalties suchascommon language, religionaredescribedasan importantdeterminantofbilateraltradevolumes(FelbermayrandToubal,2010),cultural similarities have seen among least effective factors in thisstudy; for instance, having similar religion (µ=1.87)was evaluated asoneoftheleasteffectivepsychicdistancefactors.Duetoalmost70%of


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respondentcompaniesareproducingindustrialproductswhichmeansthey are not dealing with end user directly in the operated country,culturalsimilaritiesmaybeperceivedasrelativelylessprevailing.

Table2.PsychicDistanceItems

Mean Std.

Deviation

Havingtradeagreementsbetweenhomeandhostcountry 5.22 1.952

Havingsimilartradeethicsbetweenhomeandhostcountry 4.99 1.931

Havingtraderepresentationofficesandsecondaryinformationavailabilityabouthostcountry

4.88 1.840

Presenceofaidprogramsforthehostcountry 4.84 1.985

Havinghighdegreeofforeigninvestmentsinhostcountry 4.67 2.059

Existenceofsimilarlegalsystembetweenhomeandhostcountry 4.50 1.939

Havingsimilartraderegulationsbetweenhomeandhostcountry 4.41 1.886

Havingsimilarconsumerpreferencesbetweenhomeandhostcountry 4.35 2.045

Knowingthelanguageofthecountryoperated 4.24 2.270

Havingsimilaracceptedbusinesspracticesbetweenhomeandhostcountry

4.21 1.839

Havingsimilarmarketinginfrastructurebetweenhomeandhostcountry 4.07 1.902

Havingsimilareconomicclimatebetweenhomeandhostcountry 4.07 1.957

Havingsimilarpurchasingpowerofcustomersbetweenhomeandhostcountry

4.06 2.058

Presenceoflowlevelofcorruptioninhostcountry 4.04 2.208

Existenceofdevelopedcommunicationinfrastructureinhostcountry 3.98 1.952

Havinglowgeographicproximitybetweenhomeandhostcountry 3.93 2.246

Havingsimilarlevelofeconomicdevelopmentbetweenhomeandhostcountry

3.70 1.996

Havingsimilarlevelofeducationbetweenhomeandhostcountry 3.47 1.972

Existenceofpoliticalrivalrybetweenhomeandhostcountry 3.31 1.988

Travellingfrequentlytothehostcountry 3.29 2.052

Existenceofsimilarpoliticalsystembetweenhomeandhostcountry 3.16 1.926

Havinghighleveloftechnicaldevelopmentinhostcountry 3.15 1.731

Havingsimilarconventionsofpersonalrelationshipsbetweenhomeandhostcountry

3.06 1.830

Havingculturalsimilaritiesbetweenhomeandhostcountry 2.79 1.955

Havingsimilarlifestylebetweenhomeandhostcountry 2.78 1.831


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Existenceofprevioustradingchannelsbetweenhomeandhostcountry 2.54 1.956

Havingsimilarclimaticconditionsbetweenhomeandhostcountry 2.41 1.801

ExistenceofTurkishimmigrantsinhostcountry 2.40 1.782

Havinghistoricaltiesbetweenhomeandhostcountry 2.36 1.574

Havingsmalltimezonedifferencesbetweenhomeandhostcountry 2.20 1.651

Havingsimilarreligionbetweenhomeandhostcountry 1.87 1.465

Beinginterestedinsportingactivitiesofhostcountry 1.49 1.011

1=CompletelyIneffective;7=CompletelyEffective

At secondstage, anexploratory factoranalysiswas conducted inorder to reduce the number of variables for a subsequent analysis ofvariance (ANOVA) identifying response variation based on number ofcountries operated, internationalization age and internationalizationdegree. As mentioned above, the questionnaire was made up of 32items,allofwhichweregatheredthroughscalesandindicespreviouslydeveloped. Inorder toassess the itemswhichhavebeenperceivedasmoreprominent,theitemswhosemeanscorearebelow3.56andwhichare perceived as irrelevant were deleted and not considered for thefurtheranalyses.Asaresulttotally17itemswereputintotheexploratoryfactoranalysis.However,beforehandKaiserMeyerOlkin(KMO)valueofthese17itemswascheckedtoensurethesuitabilityandwellnessofdatafor factor analysis. KMO value was found 0.869 and Barlett’s Test ofSphericityvaluewasseenassignificant(.000),promotingthefactorabilityof correlation matrix. Examination of the rotated factor loadings usingvarimaxrotationyieldedfourfactorswithaneigenvaluegreaterthanone,allofwhichexplain66.12%ofthevariance.Twoitemswithloadingfactorslessthan0.50wereremovedfromtheanalysis(Hair,1998).Thepatternsuggestedthatitemsincludedinfirstfactorwerecorrespondingmarketingattributesandlabeledas“marketingandrelateditems”(6items,α=0.848).Itemsinthesecondfactorwererelatedtotradecharacteristicsofmarketsandnamedas“traderelations”(4items,α=0.798).Thirdfactorwasregardedas“businessethics”(3 items,α=0.609)andforth factorwasrelatedto“financial incentives” (2 items, α=0.751) Subsequently Cronbach’s alphawascalculatedanditem‐totalstatisticswereexaminedforeachfactor.Atleastacceptablereliabilityratiosvaryingfrom0.6to0.8obtainedimplyingthatnoneoftheitemswereneededtoberemovedduetodiminishingtotalreliabilityleveloffactors.


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Table3.FactorAnalysisofPsychicDistanceConstruct

Factoritems Factorloading

Cumulativevarianceexplained

MarketingandRelatedItems(Alpha=.848)

21.98

Consumerpreferences 0.829 Economicclimate 0.784Purchasingpower 0.682Economicdevelopment 0.646 Marketinginfrastructure 0.585Traderegulations 0.539

TradeRelations(Alpha=.798) 39.67Tradeagreements 0.757Foreigndirectinvestment 0.740 Language 0.642Communicationinfrastructure 0.635

BusinessEthics(Alpha=.609) 53.25Businessethics 0.720Corruption 0.708 Businesspractices 0.548

FinancialIncentives(Alpha=.751) 66.12Aidprograms 0.836Representationoffice 0.783At third stage, series of ANOVA were conducted to test the

hypotheses(Table4‐5).Significantdifferenceofimpactfor“marketing,traderelationsandbusinessethicsbasedpsychicdistancefactors”werefound according to internationalization degree, number of countriesoperatedandinternationalizationage.

Thefirsthypothesis(H1a)proposedthattheimpact levelofpsychicdistancefactorsformarketing,traderelationsandbusinessethicsdiffersthroughthetotalnumberofcountriesoperated(F=5.461,p=0.005;F=4.052,p=0.020;F=6.864,p=0.002).Therefore,theH1awasacceptedthroughthesignificantresultofANOVA(Table4).Ithasbeenfoundthatasthenumberofcountriesoperatedincreases,theimpactofpsychicdistancefactorsformarketing,traderelationsandbusinessethicsdecreases.Formarketingfactor,whilecompaniesoperatinginbetween1‐5countriesthink that psychic distance factors have an effective role on theirinternationalizationdecisions(µ=4.60),companiesoperatinginmore


65

than10countriesdonotfindthemasmuchaseffectivetheyfound(µ=3.54). Likewise, trade relations and business ethics factors show alsodecreasing trendeffecton internationalizationdecisionsof companiesasnumberofcountriestheyoperateincreases.

Table4.ANOVAforTotalNumberofCountriesOperated

*1=completelyineffective;7=completelyeffectiveFor H1b, according to the results obtained from ANOVA test,

significancelevelofallfourfactors;marketing,traderelations,businessethicsandfinancial incentivesarefoundgreater than0.05,whichmeanstheperceivedimpactlevelofpsychicdistancedoesnotdiffersignificantlythrough internationalization age (F=1.078, p=0.361; F=1.688, p =0.173;F=0.754,p=0.522;F=2.553,p=0.059).Therefore,H1bwasnotconfirmed.

Regarding the H2, the ANOVA revealed that the impact level ofpsychic distance factors on internationalization decisions differsthrough internationalization degree of companies. Results obtainedreveal that two factors; impact of trade relations and business ethicsbased psychic distance factors on internationalization decisions havesignificantdifference(F=3.410,p=.020;F=4.357,p=.006).Thus,theH2isacceptedforpsychicdistancefactorsrelatedtotraderelationsand

NumberofCountriesOperated

Mean*(Std.Dev.)

F Sig

MarketingandRelated Items basedPsychicDistanceFactor

1‐5countries 4.60(1.39) 5.461 .0056‐10countries 4.12(1.40) 10+countries 3.54(1.53)

TradeRelationsbasedPsychicDistanceFactor


BusinessEthicsbasedPsychicDistanceFactor



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business ethics (Table 5). Indeed, perceived impact level of psychicdistanceforbusinessethicsfactordecreasesascompanies’foreignsalesratioincreases.Whilecompanieshadforeignsalesratioinbetween1‐10% found itmore important (µ = 5.19) than companies had foreignsalesratioinbetween26‐50%(µ=376).

Table5.ANOVAforInternationalizationDegree

Mean*

(Std.Dev.) F Sig

1‐10%11‐25%26‐50%

TradeRelationsbasedPsychicDistanceFactor

Internationalization

Degree**

4.98(1.91) 3.410 .0204.55(1.57) 4.01(1.50)

51‐100% 5.01(1.51)

BusinessEthicsbasedPsychicDistanceFactor

Internationalization

Degree

1‐10% 5.19(1.49) 4.357 .00611‐25% 4.18(1.71) 26‐50% 3.76(1.36) 51‐100% 4.63(1.34)

*1=completelyineffective;7=completelyeffective**ForeignSales/TotalSales

5.Conclusions

Overall, theresultsof thisstudysuggest that theeffectofpsychicdistance factors on internationalization decisions varies throughcompanies’ international experience and internationalization degree, ashypothesized. According to the results obtained, it was found that ascompaniesgainexperience,theygivelessimportancetopsychicdistancefactorsduringtheirinternationalizationdecisions.Theinfluenceofpsychicdistancefactorsbasedonmarketingandrelateditems,traderelationsandbusinessethicsoninternationalizationdecisionsdecreasesthroughgainedinternational experience. Hence, it can be mentioned that impact ofpsychicdistancebecomestobeneglectedasthenumberofcountriestheyoperate increases.When thecompanies increase thenumberofmarketsthey operate, they gain more experience about foreign markets, which


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results in upslope of the learning curve. Since they get higher marketknowledge about host country, their perceived risk of investing abroaddecreasesandthepsychicdistancefactorsgetlowerattention.

Participant companies have different perceptions about traderelationsandbusinessethicsbasedpsychicdistancefactorsaccordingtointernationalization degree. Companies with low internationalizationdegreementionedthattraderelationsbasedpsychicdistancefactorsaremore effective on their internationalization decisions compared tocompanieswithhigherinternationalizationdegree.ThisresultpointsouthowSMEsatthebottomrungoftheinternationalizationladderaremoreinfluencedabout thepresenceof trade agreementbetweenhomeandhostcountries,highdegreeofforeigninvestments,andfamiliaritywithlanguage of host country. However, for the companies with highestinternationalization degree, the perceived impacts of trade relationsbasedfactorshavehighermeanvalue.Thissurprisingoutcomecanbeinterpreted as highly internationalized companies are more concernedabouttraderelationsbasedonpsychicdistancefactorsduetothefactthat their resources stability and permanence aremore dependent tointernationaltraderevenuesandreturns.Especially,thepresenceoftradeagreementswithhostcountryandhighdegreeofforeigninvestmentstohost country makes the process easier for more internationalizedcompanies to intensify theiroperations andguarantee their earningsbyenhancinggeneraltradeinteractionbetweentwocountries.

Itshouldbenotedthatpsychicdistancefactorsdonothavebroadimpact on companies’ internationalization decisions. Particularly, thepsychic distance factors related to similarities about trade regulations,businessethics,legalsystems,businesspracticeswerefoundasrelativelymoreeffectivefactorsoninternationalizationprocesscomparedtosocio‐cultural factors such as historical ties, similar lifestyle and religion. Forexample,15psychicdistance itemswhich includessocio‐cultural factorshave been identified as they had poor impact on internationalizationdecision. The reasons behind this finding can be SMEs’ inadequateawarenessaboutpsychicdistancefactorsbasedonsocio‐culturalaspects.Itcanbeattributedtotwodynamics,firstofwhichisthetypeofcustomertargeted and second of which can be defined as operation mode. Forinstance,mostof thecompaniesareproducing industrialproduct,whichmeansSMEsdonotdealwithenduserdirectly in theoperatedcountry.Beside, almost all of the examined companies are internationalized


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through exportmode anddonotdealwith further resource investmentsuch as foreign direct investment (FDI). Mentioned issues can bepreventiveorhinderingpointsthatrestrainSMEstodealwiththemarketentirelyorcompletely;hence,reducingtheimpactofpsychicdistanceorawarenessofthesefactors.Togetherwiththestatementsabove,anotherexplanation which can be drawn from the company visits is thatTurkish SMEs mostly take financial opportunities into considerationratherthanpsychologicalfactors.Thoseopportunitieswhichhavebeenoveremphasizedduringtheinterviewsconsistofcostadvantagessuchas advance payment ormoney back guarantee. “Financial incentives”wasalsofoundasoneofthehighestratedpsychicdistancefactorsandthisfindingisalsoinaccordancewithpreviousexplanation.

Finally, a numberof limitationsneed tobe considered. First, thegeneralizationoffindingsislimitedbecauseoftheconveniencesamplingmethodused.Second,measurementofdependentvariableisbasedontheperceptionsofmanagers.Third,theeliminationofitemswhosemeanscoresareunder3.56coulddamagethevalidity.Fourth,inthecompanyvisitsitwasreportedthatcompaniesgenerallyhaveatendencytofindnewmarketsorcustomersthroughreferencesortestimonialsbypreviouscustomers; hence companies do not become concerned about theenvironmentorcharacteristicsofnewmarketsintheinternationalizationprocess.Thiswayofmarketselectioncanbenotedasalimitation,sinceitdiminishescompanies’ consciousnessaboutpsychicdistance factorsortheamountofimportancedevotedtothosefactors.

Aswithanystudy,therearesomeresearchlimitationsthatleadtofurtherstudies.Oursampledoesnotfocusonspecificindustryandtheresults may differ from industry to industry. Therefore, it would berecommendedtomakethecomparativeanalysisamongdifferentindustriesandbetweenSMEsandlargecompanies.Also,theresultsofthisstudycannotbegeneralizedforallofthecountries,sinceithasbeenconductedtothefirmsoperatedinIzmir,Turkey.

Whendiscussingmanagerialimplicationsofthisstudy,managers’perceptionofpsychicdistanceiscrucialforfirmsintermsofselectionof the right market. Therefore, being aware of the effect of psychicdistance factors on their internationalization decisions providesmorecomprehensiveunderstandingofmarketentrydecisionsandaccordingly,managers may handle distant‐creating factors more effectively andefficientlywhenenteringpsychicallydistantmarkets.


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SOFTWARESOLUTIONSADOPTEDBYSMES:CASESTUDYREGARDINGROMANIANSMES

MIHAELAFILOFTEIATUTUNEA1

ABSTRACT.During the last decades, the ICT industry imposed newtendencies concerning the communization of softwareplatforms andsolutions;thusacontinuouslygrowingphenomenonhasbeendeveloped,namely that of open source software. In the present context, whencompanieshavetomanagelargedatabasesandexploitthemtodevelopabusiness intelligence allowing them to create important competitiveadvantageswithintheglobaleconomy,opensourcesoftwaresolutionsbecomeviablealternativestobeadoptedbyanycompany.Takingintoaccount the global trends in open source softwaredevelopment, andalso the increase in the level ofutilizationof this typeof software incompanies,thepresentstudyassessesthetypesofsoftwaresolutionsused by Romanian SMEs, identifying comparative aspects of use andperceptionofSMEsregardingthetwoimportantcategoriesofsoftware:open source and commercial. An SME profile is also identified frompointofviewofSMEsasfinalconsumersofsoftwareproductsusedtosupport their business processes. The results of the study can beconsidered as an important source of information for the businessenvironment, startingwith the companies’ decisionmakers responsiblefor the elaboration of the development strategy for their company,continuingwith the commercial softwareproviders andopen sourcesoftwarecommunitiesanddevelopers.Keywords: free software, freeware, open source, commercial software,SMEJELcode:C88,L86,M15

1LecturerPhD,FacultyofBusiness,Babes‐BolyaiUniversity,e‐mail:[email protected]

MIHAELAFILOFTEIATUTUNEA

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1. IntroductionInformational globalization allowed companies to develop new

collaborative and innovative competencies in their own businessenvironment. ICT industryprovides companieswith specific solutionsin order to create andmaintain an active competitive advantage in aglobalized business environment. The last years have brought aboutimportant changesat global level,which canbe included in thewaveofinformational globalization, startingwith the development of hardware,software and communication infrastructures from the individual, home‐userleveluptoitsuniversalization;thedevelopmentofpublicInternetnetworktransformed,withoutprecedentinthehistory,bothinterpersonalandbusinesscommunication;thusthepossibilityandabilitytocommunicateandtransactioninformationatgloballevelmadepossibleforcompaniestodevelopnewcollaborativeand innovative capacitiesandcompetencesfortheirbusinessenvironment.

Fromanotherperspective,theglobalizationofdigitalinfrastructureandmobile technologieschangedtheglobalcompetitivepolarity, this,atits turn, also becoming global. Any company must fight on the globalcompetitivefrontand,asaconsequence,andwiththisaim,mustdevelophigherleveladaptabilityabilitiesandcompetences.

In this context, companies have the opportunity to use tools andsolutionsputasdisposalby the ICT industry for theirowndevelopmentand for creating and maintaining an active competitive advantage in aglobalizedbusinessenvironment.

FromtheperspectiveofsolutionsofferedtocompaniesbytheICTindustry,itisveryusefultoidentifyaphenomenonthathasbeenhugelyamplifiedduringthelastdecades,namelythedevelopmentofopensourcesoftwareindustry.

Thepracticeofthebusinessenvironmentaswellastheeconomiccrisis, transformed theOSS (Open source Software) industry into a longtermviablealternativeprovidingcompanieswithreliableandadvantageoussolutionswith important benefits to their competitiveness in the globalbusinessenvironment.

Thesoftware industryofferscompanies importantalternatives inadoption of software support solutions for business processes, fromcommercialsoftwarepackages,solutionsforrentingsoftwareto,notintheleast,opensourcesolutions.


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OSS developed as a contemporary phenomenon, with sustainedgrowth tendencywithin ICT industry, aswell as in the field of softwareadoptionbycompanies(Marsanaet.al,2012).Despitethedevelopmentofthis industry, therateofadoptionofOSSbycompaniesonaglobal levelremains at low level due to some important loopholes in elaboration ofadoption and development policies and procedures at company level.(Marsanaetal.,2012).

ICT literature indicates that open source may lead to enhancingquality and innovation in the business environment. Regarding theadoptionofopensourcesolutionsbycompanies, a seriesofmotivationswereformulatedthatsuggest,ononehand, thefact thatthisadoptioniscarried out by companies desiring to obtain a competitive advantage intheir field of activity, on the other hand, the impact of these softwareproducts on the perception of companies regarding open source vs.commercialsolutionsisunderlined,havingasfinalresultare‐evaluationof software products in companies and development of long term opensourcestrategies(Asundiaetal.,2012).

Starting from these aspects and from the global tendenciesregarding the OSS development and the increasing adoption rate ofthese solutionswithin the companies, thepresent studyevaluates theadoptionofopensourcesoftwarevs.commercialsoftwareinRomanianSMEs,drawingaprofileofSMEsasfinalusersofsoftwareproductsforsupportingbusinessprocesses.

Thestudy’sresultsofferanimportantsourceofinformationforthebusiness environment, starting with open source software providers,continuing with those providing commercial software and decisionmakers in companies in charge of the elaboration of their developmentstrategies.Onanotherlevel,additionaltoidentifyingthelevelofusageofopensourcesoftwareinSMEs,thestudyalsoidentifiestheadvantagesanddisadvantagesperceivedby themregardingtheadoptionofopensourcesoftwareandtheperceptionofSMEsinrelationtotheirfutureadoption.

2. LiteraturereviewSoftware industry can be considered as having one of the most

rapidratesofgrowth,beingalsoanobviousrepresentativeofglobalization.


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According to MarketLine, the global software market hadrevenuesof292.9billiondollarsin2011,havingacompoundedannualgrowth(CAGR)of3.6%between2007‐2011(http://www.reportlinker.com/ci02072/Software.html,accessedJanuary2013). According to the same source, a 6.3% annual growth rate isestimatedforthe5yearsperiodbetween2011‐2016,expectedtoleadtoa revenueof396.7billiondollarson themarketby theendofyear2016.

In2012,InternationalDataCorporation(IDC)indicatedthatthesoftwaremarketatglobal levelgrewby3.6%yearbyyear; ithasalsoforecasteda growth rateof5.7% for2013anda compoundedannualgrowthrateof6.3%fortheperiod2012‐2017http://www.idc.com/getdoc.jsp?containerId=prUS24127113,accessedMarch2013).

Open source industry brought about changes in the softwaremarketatgloballevel;withintheglobalsoftwaremarkethavingavalueofalmost300billiondollars,theopensourcesoftwaremarketisexpectedtoregisterayearlygrowthrateof22%,exceeding8billiondollarsin2013(http://www.reportlinker.com/ci02075/Open‐Source‐and‐Free‐Software.htmlaccessedMarch2013).

Llanesa&DeElejalde (2013)determined the conditionsunderwhichopensourcecompaniesandproprietarycompaniesco‐existinabalance characterized by a market with asymmetrical structure;“proprietaryfirmsinvestmoreinR&Dandobtainalargermarketsharethanopensource firms.Opensource firms,on theotherhand,benefitfromlowerdevelopmentcosts.”

Accordingtothestudycarriedoutin2013byVenturePartnersand Black Duck Software, among themain drivers for choosing opensource by companies we can find innovation, collaborationpartnershipsandpossibilitiesforinfrastructuredevelopment(http://opensource.com/business/13/4/open‐source‐2013‐survey,accessedMay2013).

Fromtheperspectiveofsuccessachievedbyopensourcesolutionsontheglobalsoftwaremarket,Midha&Prashant(2012)identifiedamongthe success factors ofOSS theusers and thedevelopers, basedonmorethan300,000OSSprojectsavailableonlyonSourceForgeinOctober2011.

The software industryand ICT literatureassign twomeanings tofree, community software, namely free and open source software. The


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term“free”of“freesoftware”referstothefinaluser’sfreedomandnottoits costless acquisition. The first complete definition was published inGNU’sBulletin,inFebruary1986(http://fsfe.org/about/basics/freesoftware.en.html,accessedonApril2013)andcomprisesthefourfreedomsconferredbythefreesoftwarecategoryitsusers,namely:freedomtouse,copy,distribute,changeandimprovetheadoptedsoftware(http://www.gnu.org/philosophy/free‐sw.htmlaccessedApril2013).

A clear distinction has to bemade between the two establishedterms of software industry: free software, respectively freeware. Whilefree software grants the four cumulated attributes to the products, alsosupposing, evidently, access to the source code, in case of freeware ismeantthatcategoryofsoftwarethatcanbedownloadedfromtheInternetbyanypersonandcanbeusedforfree,withoutaccesstothesourcecodeandwithoutpossibilityofmodifying,personalizing,improvingit.

In this context, the other category, open source, does not onlyindicate access to the source code; but there are also other criteriaincludedinitsdefinition.Opensourcesoftwaresupposesfreeredistributionof software products, without any licensing restrictions, in order toallowmodificationsanddistributionunderthesameconditionsastheoriginalsoftware;opensourcesupposesequalitybetweenusergroupsand fields of activities or industries. (http://open source.org/osdaccessedApril2013).

Attheinvisibleborderbetweenfreeandopensourcesoftwarewecan find thenew tendenciesof some fix andmobile equipment suppliercompanies to offer attached to the equipment, some free softwareapplications which can be considered free and open source code; butsuppliersdonotallowtheinstallationofmodifiedversions;upgradingofthese applications can be done only by the producer companies. Thesepracticesarecalledintheindustryas“tivoization”.(http://www.gnu.org/philosophy/open‐source‐misses‐the‐point.html,accessedMay2013).

Frompointofviewofopensourcelicenses,themostwell‐knownand the most used were defined by the Proliferation Report of OpenSourceInitiative(OSI)in2006andare:ApacheLicense2.0,BSD3‐Clause"New" or "Revised" license; BSD 2‐Clause "Simplified" or "FreeBSD"license; GNU General Public License (GPL); GNU Library or "Lesser"


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General Public License (LGPL); MIT license; Mozilla Public License 2.0;CommonDevelopmentandDistributionLicense;EclipsePublicLicense(http://opensource.org/licenses,accessedApril2013).

Daffara Carlo (2011) underlined the fact that choice of a type oflicenseforF/LOSS(Free/libreOSS)isinfluencedbytheadoptedbusinessmodel “property‐efficiency”, depending on two parameters: intellectualpropertyandefficiencyofadoptedsoftwaresolutions.

Mens&Goeminne(2011)bringanewvisionintotheunderstandingof OSS demonstrating the important impact of social aspects on thetemporal evolution of OSS ecosystems. The authors underline theexistenceofanimportantlinkbetweentheevolutionofthesoftwareandthatofthesoftwarecommunity.

Margea(2009)highlightedaspectsrelatedtothegrowingtendencyof adopting OSS as a viable alternative for commercial and proprietaryapplicationsincompaniesandpublicadministrationsfromEurope.

Senetal.(2012)underlinedaspectsrelatedtothesuccessofopensourceprojects from thedoubleperspectiveof developers andof users.TheiranalysisidentifiedthefactthatprojectsthatdevelopOSsoftwareforWindows/UNIX/LinuxoperationalsystemsandthoseusinglanguageCorderivedlanguagesattractahighernumberofusersaswellasdevelopers;otheraspect is related toOSSprojectsaccepting financialdonationsandthathavealargenumberofusers;anotherdimensionidentifiedisrelatedtotheproportionalitybetweenthenumberofusersandtheageoftheOSsolution.

Mertik(2011)inastudyconcerningtheadoptionofopensourceinSloveniapointsoutthatopensourcegainedgroundasanopportunityforthebusinessenvironment,bringinganimportantaddedvaluetoSMEs.

Hunter&WalliStephen(2013)concludedasaresultoftheirstudythat software developed in collaborative environment and under opensourcelicensescontinuetoofferanincreaseinproductivityfordevelopersaswellasforusersandcompanies.

Gartner Consulting Company, demonstrated that from theperspectiveofICTinfrastructuredevelopment,upto2016,SMEsatgloballevelwillspend1Trilliondollars;thebiggestgrowthopportunitiesareforecastedinSoftware&Services,andAsiawillbetheregionwiththemostimportantopportunitiesfordevelopment.(http://www.gartner.com/it/content/2273800/2273821/january_8_itspending_forecast_final.pdf?userId=59645980,accessedMay2013).


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According to the same source, it is envisaged that softwareindustry will have a yearly increase of 6.8%until the year 2016; inemergingeconomiesthe increasewillbedeterminedbyERP(enterpriseresourceplanning)solutionsandDBMS(databasemanagementsystem),whileinmatureeconomiesbysecurityandCRM(customermanagementsystem)solutions.

Macredie & Kabiru (2011), identified a set of factors that canprofileanempiricframeworkforadoptionofOSSsolutionsbySMEs.Inidentifying theperceptionofSMEson theadoptionofOSSsolutions, theauthors used as starting point the attitudinal belief structure regardingbenefits, complexity and comparability of OSS solutions. The identifiedfactorswere:lowcostsofthesoftwarelicenceacquisition,lackofdriverscorresponding to thesesolutions, functionality, supportofferedby theOSS community, web media, innovativeness, capital investments andcommunicationinfrastructureincaseofadoptingsuchsolutions.

Pande&Gomes(2012), identifiedamongthebenefitsofadoptingOSSsolutionsbySMEsthefollowing:easypersonalisationofthesolutions,increase in visibility in the OSS develops’ community, increase in thequalityofsolutionsfromcollaborativepointofview,unlimiteduseofOSSsolutionsandthelargesupportintheprocessofutilisationofferedbytheOSScommunity.

Werber & Žnidaršič (2011), through their study concerning thelevelofawarenessofOSSsolutionsandtheirusebymicro‐companiesinSlovenia, identified the following aspects: almost half of the studiedcompanies used a category of software without licence, 34% of themanagershadnoknowledgeaboutOSS,andthepercentageofusingOSSsolutionsincomparisontocommercialsoftwarewasverylow.

OpensourceinRomaniaIn Romania, representatives of Zitec Company developed over

250projectsusingmainlyopensource technologies,havingallocatingonaverageninemonthsofworkperproject(http://www.forbes.ro/Cat‐timp‐acorda‐specialistii‐romani‐unui‐proiect‐it‐open‐source_0_6962.html,accessedApril2013).

In Romania, 2013, was marked by the entry on the Romanianmarketofthegloballeaderinopensourcetechnology,RedHat;themainadvantagesofRedHatsolutionsattractedover70Romaniancompaniesin


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adopting open source solutions (http://www.agora.ro/stire/tehnologia‐open‐source‐un‐trend‐companiile‐din‐romania,accessedMay2013).

The Romanian company BIT Software is the developer andproviderof someopensourcesolutions;SocrateOpenERP&CRMisusedbycompaniesinthefieldofprofessionalserviceslikeAvangateorByblos(http://www.aries.ro/socrateopen‐erpcrm‐solutia‐potrivita‐pentru‐companiile‐de‐servicii‐profesionale/,accessedApril2013).

3. MaterialandmethodsThe global image of the open source industry’s development, as

wellas the increasingglobal tendenciesofadoptionof thesesolutionsin companies, determined the implementation of an ample researchregardingthelevelofadoptionofopensourcevs.commercialsolutionsinSMEsfromourcountry.

The complexity of research allows identification of someimportant aspects starting with the perception of SMEs regardingexisting open source solutions, the level of use them in their specificactivities, SME’s perception concerning the benefits and risks of theiradoption,respectivelytheirvisionconcerningthenecessityofadoptingthesesolutionsonshort termand theglobalevolutionofopensourcevs.commercialsolutions.

In carryingout the research itwasnecessary tohaveanoptimalmixof online andoffline research tools, respectively of those specific tomobiledevices.

It is well‐known the difficulty of carrying out research usingtoolsthatarespecifictothedigitalenvironmentandmobiletechnologies,due to the dispersed character of the subjects’ geo‐location and theimpossibility of integrally contacting the population included in theresearch. As a consequence of this shortcoming, common toweb andmobilebasedstudies,theselectionofthepopulationandoftheresearchtoolswasdone to ensure thebestpossible representation inorder toobtainconclusiveresults.

The research covered all SMEs registered online inRomania andwascarriedoutbetweenJanuary2012andJune2013.


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Theresearchconceptwastoidentifysomeveryimportantaspectsfor the software industry, viewed both from the perspective of demandandthatofthesupplyoftheseproducts,namely:

The comparative level of use of open source vs. commercialsolutionsandtheshareoftheseinSMEs;

Typesofusersofopensourcesolutionsinrelationtothelengthofadoptionofopensourcesolutions;

ExistenceofICTstaffspecializedonopensourcetechnologies,inSMEs;

Solutions and categories of open source compared tocommercialsolutionsusedinSMEsinpresent;

SMEs’ perception of advantages and risks of adopting opensourcesolutions;

SMEs’visionregardingtheshorttermadoptionofopensourcevs.commercialsolutions;

SMEs’perceptionoffuturedevelopmenttrendconcerningopensourcevs.commercial.

It was necessary to combine primary information collectedthroughthequestionnaireansweredbySMEswithsecondaryinformationresulting from statistical resources, existing researches and studies,onlineinformationsources.

The questionnaire developed for the research was conceived inshared format, using collaborative tools of Google Drive, taking intoaccountthepossibilityofquickandautomatedcollectionofdata.

The questionnaire was disseminated using several tools, beingtransmitted inembedded formatusingemailandSMS,butQRcodewasalsogeneratedwiththeURLofthequestionnaireandinformationontheresearch.

Thequestionnairewasconceivedinamodularstructure,basedontheconceptandaimsoftheresearch,andincludedatotalof15questions:

The first module comprised questions for identifying SMEs inrelationtothecountywhereSMEswereregistered,theenvironmenttheyoperate in (urban/rural), the field of activity according to NACE, andnumberofemployees;

Thesecondmodulecontainedquestionsconcerninguseofopensource solutionsand theproportionof these solutions in comparison tocommercialsolutions,lengthofusingopensourcesolutionsandexistenceofICTstaffspecializedinusingopensourcetechnologies;


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ThethirdmoduleincludedquestionsregardingthecategoriesofsoftwareandopensourcesolutionsusedinpracticebySMEscomparedtocommercialsoftware;

The fourth module contained questions aimed to identify theSMEsperceptionon theadvantages and risks linked to theopensourcesolutionsthatcouldbeadopted;

The last module presented questions related to SMEs’ visionregarding adoption of open source vs. commercial solutions and futuredevelopmenttendenciesofopensourcesolutions.

As a consequence of previous experiences, and taking intoaccountaspectslinkedtothehighlytechnicalcharacterandthespecificterminology used in the questionnaire, in order to ensure the mostcompetentanswerstothequestions,anexplanatoryindexofthetermsusedinthequestionnairewasdevelopedandattachedtoit.

Themostlaboriousanddifficultpartoftheresearchwasidentifyingthe data on SMEs registered in the digital environment; with this aimonlineresourceswereidentifiedandusedsuchasfreewebdirectoriesandstatisticalwebsiteslistingforfreedataofSMEsfromRomania.

Theset‐upofthedatabaseofSMEswithonlinepresence,withvalidcontact information(emailaddress,telephonenumberandwebsite)wascarriedout correlating thedata from these free resourceswith thedatalisted on the service portal of the National Company Registry, using itsRecomonlinefreeservice(https://portal.onrc.ro/ONRCPortalWeb).

In this context, to identify SMEs as subjects of the research, freeonline resources listing Romanian companies per county and field ofactivitywereusedandanalyzed.Weselected forconsiderationwebsitesandspecializeddirectoriesas:http://www.firme.ro,http://www.listafirme.ro/,http://www.firme.info/,http://www.datefirme.ro/,www.firme‐on‐line.ro/,www.firmepenet.net/,http://www.directorfirme.ro/,http://www.economia‐online.ro/,www.bizoo.ro/catalog‐firme/.

Aftercollecting thedata,12,246SMEsregistered inRomaniaandlisted by specialized sourceswere identified; the datawas subjected tofiltering and structuring based on the existence and correctness of thedata.OnlythoseSMEswereselectedthathadactivewebsite,validemailaddressortelephonenumber.


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SMEs identified as subjects of the research were invited toparticipateusingdiverseonlinetoolsavailable:emails,socialmediausinga topic created especially for this purpose, SMS andmobile or landlinetelephonecalls,allindicatingtheURLswherethequestionnairecouldbecompleted.

The selection resulted in retaining and building a researchpopulationconsistingof11,796SMEsregisteredinRomania,subjectedintheirtotalitytosurveyingusingtheabovementionedmethod.

By comparing the number of SMEs registered statistically inRomania,529,015SMEs,(http://ec.europa.eu/enterprise/policies/sme/facts‐figures‐analysis/performance‐review/files/countries‐sheets/2012/romania_ro.pdf,accessed on January 2013) and the number of those identified as aresultoftheresearchasbeingregisteredononlineresources(withoutconsideringtheexistenceandaccuracyofcontactinformation)(12,246SMEs),wecanconcludeaverylowlevelofSMEpresenceinthedigitalenvironment (2.31%). This situation may be caused by the lack ofinformation on new technologies and software solutions to supportspecificactivities,revealedamongSMEsinourcountry.

The most important percentages among the subjects wererepresentedbySMEshavingthefollowingfieldsofactivity:Construction,Architecture,Design,Cadastre(20.36%),followedbySMEsfromthefieldofComputers,Software,Communications,Officeautomation(9.34%),andhavingasharebetween5‐10%SMEsfromBusinessServices,Marketing,Publicity,Services‐otheractivities,Machineryandequipment.

A very low percentage, below 1%, was registered by SMEsbelonging to the field of Footwear, Leather, Glass, Ceramic, Industry ‐otheractivities.

It is important to point out thatmany SMEs frommultiple fieldshad a low share, between 1‐5%, making up 40.47% of the selectedsubjects; thismay indicate important aspects related to lackof visibilityandactiveonlinepresenceofaworryinglyhighpercentageofRomanianSMEsthatarepracticallynotadaptedtotheonlinebusinessenvironmentwhich would ensure their global integration in an efficient, rapid andmainlyfreeofchargemanner.

Other aspect, otherwisewell‐known in relation to theweb‐basedsurveys,shouldbepointedout,namelythatrelatedtotheunsatisfactoryanswer rate achieved at completionof thequestionnaireplacedonweb


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andmobile‐based interfaces; thisshortcomingrequiresasupplementaryeffortincarryingouttheresearchcallingforclassical,offlineinterviewingactivitiesusingtelephoneorface‐to‐face.Thefinalrateofresponseswasonly of 58.06% from the total population included in the researchrepresenting6,849SMEs.

4. ResultsanddiscussionsThe first module of questions provided identification data of

SMEs inrelationtothecountyofregistration,theenvironment inwhichthecompanydeploysitsactivities,thefieldofactivityandthenumberofemployees.

The analysis of data identified two categories of counties withtotally opposed rates of representation; the best represented countieswere:Cluj,Timis,Contanta,Brasov,Ilfov,Bihor,Prahova,whileamongthecounties with the lowest representation we find: Covasna, Botosani,Ialomita, Calarasi, Vaslui; the capital city of the country, Bucharest,wassituatedamongthewellrepresentedregions.

From point of view of the environment in which the subjectdeploys their activities, the SMEs indicated urban environment inproportionof79.85%,therestbelongingtoruralenvironment.

Thebestandtheworstrepresentedfieldsofactivity,indecreasingorderarepresentedinTable1.

TheanalysisofdataregardingnumberofemployeesindicatedbytherespondentspresentsastructuringofSMEsthatputsonthefirstplacesmallcompanies(numberofemployeesbetween10and50)with62.21%oftotal,followedbymicro‐companies(withlessthan10employees)with23.17%,whileonly14.62%representedmediumcompanies (withmorethan50,butlessthan250employees).

Tabel1:SMEsbyfieldofactivity

Fieldofactivity PercentageThebestrepresentedMedia.Printing 73.31%Computers,Software,Communications,Officeautomation 72.60%Marketing,Publicity 70.14%Construction,Architecture,Design,Cadastre 69.86%


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Theanalysisofdataresultingfromthesecondmoduleofquestions

revealedthefollowingaspects: Usage of open source vs. commercial solutions points out non‐

users in thehighestproportion(52.67%), followedbythosewhoplanusing open source solutions (36.30%), while only 11.03% declaredthemselvesusersofopensourcesolutions(Figure1).

No, only commercial,

52.67%

we are planning to

adopt opensource,

36.30%

opensource users,

11.03%

Figure1.Usageofopensourcevs.commercialsolutions Takingintoaccounttheproportionofopensourcesolutionsused

bytherespondents,mostofthem(49.12%)indicatednon‐usageofthem,while 11.12% pointed out a lower proportion of used open source

Businessservices 67.60%Motorvehicles,Transportequipment,Fuel 66.45%Services‐otheractivities 63.86%Tourism,Hospitality,Restaurants 62.28%Electrical machinery and appliances, Electronic equipment. PrecisionInstruments

61.54%

Theworstrepresented(fewerthan35%)Industry‐otheractivities 35.94%Textile.Clothing 35.34%MetallurgicalProducts 35.25%Healthcare 32.73%Glass,Ceramic 30.77%Forestry,Loggingandgatheringofreed,Processingoftimber.Pulppaperandpaperboard

22.05%


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solutionsthanthatofcommercialsolutions;theserespondentssubscribetothecategoryofnon‐usersofopensourceandtothatofSMEsplanningtoadoptopensourcesolutionsinthefuture.

Thecategoryofopensourceusers indicatedausageof100%ofthese solutions (10.6%) together with 29.09% who used more opensourcethancommercialsoftware.

The length of using open source solutions by SMEs shows fourtypesofusers:usersbelow3years,representedinthehighestpercentage(40.75%), followedbyusersbetween3and5years(29.34%),andthen,havingveryclosepercentages,thegroupsofshorttermusers,thosewhouse these solutions for less than one year (14.02%) and the long termusers,withover5years(15.89%)(Figure2).

Figure2.Thelengthofusingopensourcesolutions The question related to the existenceof ICT staff specialized in

usingopensourcetechnologiesinSMEsindicatesapercentageof65.12%ofSMEshavingqualifiedITstaff;thisveryhighpercentageissurprisinganditisnotatallcoveredbySMEsusingonlyopensourceandreferstoSMEswithover3yearsofexperienceinusingthesesolutions.

The data from the questionnaire’s third module provides, afteranalysis,relevantinformationregarding:


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Themain categories of open source software actually used bySMEs in comparison to commercial software; from this perspective theanalysiscoveredclientandserveroperationsystems,webservers,proxyservers, application servers, desktop applications, office applications,system tools, file management applications, multimedia applications;graphical and imagemanagement applications, Internet tools, statisticaltools,others;

o theimageoftheopensourcesoftwarecategoriesusedbySMEs,indecreasingorderofpercentages,isshowninFigure3.

Figure3.Opensourcesoftwarecategoriesused

o themostusedcategoriesofcommercialsoftwareareindicatedin

Figure4:o another aspect revealed by the data analysis refers the open

sourcesoftwarecategoriesinuseaheadofcommercialsoftware; in this area the following categories were indicated: Internet

tools, File management applications, Web servers, Proxy servers,Application servers, System tools, Graphical and image managementapplicationsandServeroperatingsystems;


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Figure4.Themostusedcategoriesofcommercialsoftwareo thecomparisonbetweentheaveragepercentages forusingopen

sourcevs.commercialsolutionsshowsthatcommercialsoftwarecategorieswerenamedasbeingusedinahigherproportion(41.42%)aheadofopensource (39.70%); however, it must be pointed out the fact that thedifferencebetweenthetwopercentagesisverysmall.

The identification of two specific classes of software solutionsactuallyusedbySMEs,fromthesamecomparativeperspective‐opensourcevs. commercial; in this contextwe considered business applications andsoftwaredevelopmentapplications;

o for the classofbusinessapplications themost importantandmostusedapplicationswereidentified,asfollows:Accountingsoftware,Collaboration software, CRM (customer relationship management)software,e‐commercesoftware,Groupwaresoftware,Invoicesoftware,POS(pointofsale)systems,Projectmanagement,Documentmanagement,Asset management, Business intelligence, ECM (enterprise contentmanagement) and portals, ERP (enterprise resource planning), HRM(Humanresourcemanagement),Issuetracking,Others;

o theanalysisofcollecteddatafortheseopensourceapplicationsputs in front of the list solutions of the following types: Collaborationsoftware,Documentmanagement,ECMandportals,E‐commercesolutions,Projectmanagement(Figure5).


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Figure5.Themostusedopensourcebusinessapplicationso from commercial software categories the most used were the

followingsolutions:POSsystems,Accountingsoftware,Invoicessoftware,HRM,CRMsoftware(Figure6).

Figure6.Themostusedcommercialbusinessapplications


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o comparativeanalysisofopen source software categoriesusedaheadofcommercialsoftwareshowsthefollowingcategories:Collaborationsoftware,E‐commercesoftware, Issue tracking,ECMandportals,projectmanagement,GroupwaresoftwareandDocumentmanagement;

o the average of percentages indicated for using open sourcebusinesssolutionsis22.78%,whileforcommercialsoftwareis30.7%;

o an importantdifference isnoticeablebetween the two figures,indicatingaclearpreference forcommercial solutions for thisclassofapplications;

o in case of the second class, that of software development,analysis of data concerned themost important software developmenttools,namely:WebDevelopment(blogsoftware,CMS,Socialnetworking,text editors and IDEs, Web forums, Web frameworks, Web galleries,Webmail,etc.),Appdevelopment(App frameworks, IDEs, Issue tracking,Programming tools, revision software, text editors, UML tools, etc.),Mobiledevelopment(frameworks,mobiletools,etc.),others;

this category indicates the prevalence of using open sourcesolutionsaheadofcommercialsolutions;thus,intheopensourcecategorythe ranking based on percentages is as follows: Web Development2.56%,AppDevelopment79.23%,Mobiledevelopment78.98%,others76.43%,whileinthecommercialcategorythedecreasingorderofuseddevelopmentapplicationsis:others2.65%,WebDevelopment11.65%,Mobile development 8.94%,AppDevelopment 8.54%; the comparisonof average percentages of using open source development applications(79.30%) is very high in relation to that of the commercial category(10.45%)(Table2).

Table2:Softwaredevelopment‐comparativeuse

Product OSS CommercialWebDevelopment 2.56% 11.65%AppDevelopment 79.23% 8.54%MobileAppdevelopment 78.98% 8.94%Others 76.43% 2.65%

o thisresultexplainsthefactthatopensourcesolutionsarevery

common and used by ICT staff from companies, those who also haveknowledge of these technologies and possess development abilities and


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competencies; fromherealso resultsan important relationshipbetweentheexistenceofICTstaffinpossessionofdevelopmentcompetenciesandadoptionofopensourcetechnologiesinSMEs.

Theanalysisofthedatacollectedfromtheanswerstothequestionsforming the fourth module of the questionnaire put face to face theadvantagesandtherisksperceivedbySMEsintheadoptionofopensourcesolutions; respondentsconsideredas themost importantadvantagezerocostsrelatedtoacquisition, implementation,developmentandupgradingof the solutions (89.76%), while experimental use for innovation wasindicatedasthelessimportantperceivedadvantage(23.89%)(Figure7).

Figure7.Advantagesofadoptingopensourcesoftware

WithinthecategoryofdisadvantagesperceivedbySMEsregarding

the use of open source solutions the most important one was therequirementof specialized ICT staff anddevelopers (43.24%),while thelessimportantdisadvantagewasconsideredtobethelackofobservanceofintellectualpropertyrights(12.45%)(Figure8).


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Figure8.DisadvantagesofadoptionofopensourcesoftwareThe analysis of data resulting from the lastmodule of questions

highlights,ononehand,thevisionofSMEsrelatedtoadoptingopensourcesolutionsvs.commercialsolutionsonshortterm(lessthanoneyear),ontheother hand, prognosis of SMEs regarding future tendencies in thedevelopmentofopensourcesolutions;thepercentageofthoseplanningtoadopt open source solutions on short term is prevailing (47.17%),followed by those remaining faithful to using only commercial software(40.26%); a very low percentage is identified as devoted users of opensourcesolutions(12.57%)(Figure9).

Figure9.Theshort‐termadoptionofopensourcevscommercialsolutions


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TheperceptionofSMEsregardingfuturedevelopmenttendenciesofopensourcevs.commercialsoftware indicates thehighestpercentageforthoseoptimisticaboutthedevelopmentofopensource(38.53%);veryclosepercentagepresentcompaniesconsideringthatcommercialsoftwareindustry will maintain its dominance (37.34%); only 24.13% ofrespondentsareconvincedthatopensourcesolutionswilldominate thesoftwaremarket(Figure10).

Figure10.Futuredevelopmenttrendofopensourcevs.

commercialsoftwareThedataanalysisresultsallowoutliningaprofileofSMEsfromthe

perspectiveofconsumerofopen sourcevs.commercial solutions; the finalconsumerofcomparedsoftwaresolutionsisamicro‐companyregisteredinoneofthefollowingcounties:Cluj,Timis,Contanta,Brasov,Ilfov,Bihor,Prahova,which:

deploys its activities in urban environment in fields likeMedia,Printing,Computers,Software,Communications,Officeautomation,Marketing, Publicity, Construction, Architecture, Design, Cadastre,Motorvehicles, Transport equipment, Fuel Services‐other activities, Tourism,Hospitality, Restaurants, Electricalmachinery and appliances, Electronicequipment,PrecisionInstruments;

isnon‐userofopensourcesolutions,butplanstoadoptthistypeofsolutions,oralreadyusesthem;


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belongs to the category of users with less than 3 years ofexperienceinusingopensourcesolutions;

hasICTstaffspecializedonopensourcetechnologies; isanuserofthefollowingsoftwarecategories:serverandclient

operational systems, web servers, proxy servers, application servers,systemtools,graphicalandimagemanagementapplications,filemanagementapplications,Internettools;fromopensourcebusinessapplicationsusesCollaboration software, Document management, ECM and portals, e‐commercesoftware,projectmanagement,Groupware;

indicated themain open source development tools used:WebDevelopment,followedbyAppDevelopment,Mobiledevelopment;

stressedasafirstadvantageinadoptingopensourcesolutionsconsidersthenullcostsofacquisition,implementation,developmentandupgradingofthesesolutions;

identified the main disadvantage is the necessity of havingspecializedICTstaffanddevelopers;

will adopt open source solutions on short term and considersthattheopensourcesoftwarewilldominatethesoftwaremarket.

5. ConclusionsItisknownthefactthatinthedynamicsofeconomicdevelopment

bothatnationalandatgloballeveltheSMEssectormaybeconsideredasavery important driving factor and for its support and developmentmediumandlongtermstrategiesaredeveloped.

Theresearchcarriedouthadasstartingpointalsothisimportantaspect,supplementedbyanextremelydynamicsector,theICTindustryingeneral, and software industry in particular; these industries contributesignificantly to the support and development of global economy; as aconsequence, using software solutions to support SMEs’ activitiesshouldbeconsideredasdesirableforallcompaniesaimingtomaintainthemselvesonagloballycompetitivemarket.

From this perspective, the results of the present study can beconsideredusefulfordecisionmakersinSMEs,whoshouldpayattentiontothefollowingaspects:


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The development of an ICT infrastructure adapted to presenttechnologiesandthatwillleadtothecreationofacompetitiveadvantagevisibleatlocal,regionalandgloballevel;

Toconsidertheaspectsrelatedtoopensourcesoftwaresolutionsasacostless,flexible,viableandsecurealternativetocommercialsolutions,and permitting, on one hand, reduction of costs, on the other hand,maintenance at high and continuously updated level of the softwareinfrastructure;

ToconsidertheelaborationofcorrelatedICTdevelopmentandHRMstrategies, includingtheadoptionofopensourceICTsolutionsandusingspecializedICTstaff.

Regarding the categories of open source and commercialsoftwareproviders,theresultsoftheresearchprovideusefulinformationconcerning theprofileof potential consumers in SMEs, able tooutline anewmarketsegmentthatisverydynamicatlocallevelaswellasatgloballevel; the software categories that remain uncovered with softwaresolutions could be identified and become the target of the activitiespromotingopensourceorcommercialsoftwaresolutions.

Theproviders of open source software solutions can identify theimportant shortcomings in the SMEs’ information level regarding opensourcesolutionsexistingontheICTmarket,andthusareabletodevelopinformation and presentation strategies of these solutions using onlinecollaborativetools.

Commercialandopensourcesoftwaredevelopers,basedontheresults of thepresent study,may identify ICTdevelopment trend, therates of using commercial vs. open source solutions, perceptions andvisions concerning the adoption of open source solutions that couldrepresent important elements to be taken into account in softwaredevelopmenttendencies.

Starting from the disadvantages and risks perceived by SMEs inrelation to adoptingOS solutions, there is a need for better informationfrom thepartofprovidersanddevelopers todissolve the fearsof SMEswithsoundarguments.

Oneoftheriskfactorsperceivedbyopensourcesoftwareusersisconnected to security of these solutions; from this point of view, Craig‐WoodKate(2013),inacasestudyregardingthedesignofahosting/cloudIaaS (infrastructure as a service)usingonly open source software tools,strengthensthefactthatopensourcesoftwaresolutionsaremoresecurethanthesolutionsofferedonthesoftwaremarket.


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Finally, but not in the least, open source communities can beconsideredfinalbeneficiariesofthisstudy,theybeingabletosubstantiatenewinformationandawarenessraisingstrategiesdirectedtoSMEsaboutaspectsrelatedtoexistingopensourcetoolsandsolutionswhichcanbeadoptedunderveryprofitableandcompetitiveconditionsatgloballevel.

Theresultsofthestudycanalsobeconsideredasasetofelementsuseablebyanypersonorcompany,havingtheroleofraisingawarenessontheneeds for informationandefficientadaptationofanykindofhumanand economic activity to community and collaborative solutions of theopensourceindustry.

Althoughtheresearchcanbeconsideredverywideandlaborious,ithasitslimitationsrelatedfirstlytothedifficultiesinidentifyingcompleteand correct data on SMEs registered in Romania; this fact required alaborious web‐mining activity and correlation of different informationavailable for free in the digital environment. Another limitation can becorrelatedwiththelevelofrepresentativenessofthestudiedpopulationattheleveloftheentirecountry,oratregional,orcontinentallevel.Takingintoaccount these limitations, theexploratorycharacterof the research,and the qualitative results obtained, large opportunities of researchextensionareopenedfromgeographicalpointofview,attheleveloflargerregions. The results of the research can also be used in comparativeanalysis concerning similar aspects from other countries, also allowingfurtherdetailing the researchonclassesand typesof softwaresolutionswhichmaketheobjectofpresentandfuturetechnologicaltrends.

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