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DAUGAVPILS UNIVERSITĀTE / DAUGAVPILS UNIVERSITY
HUMANITĀRO UN SOCIĀLO ZINĀTŅU INSTITŪTS /
THE INSTITUTE OF HUMANITIES AND SOCIAL SCIENCES
REĢIONĀLAIS ZIŅOJUMS
REGIONAL REVIEW
PĒTĪJUMU MATERIĀLI
RESEARCH PAPERS
14 (2018/2019)
DAUGAVPILS UNIVERSITĀTES
AKADĒMISKAIS APGĀDS “SAULE”
2019
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Apstiprināts Daugavpils Universitātes Humanitāro un sociālo zinātņu institūta Zinātniskās padomes sēdē 2019. gada 17. jūnijā, protokols
Nr. 6. un Daugavpils Universitātes Zinātnes padomes sēdē 2019. gada 15. oktobī, protokols Nr. 14.
Confirmed at Daugavpils University Institute of Humanities and Social Sciences, Scientific Board meeting on June 17, 2019, Minutes No 6.
and Council for Research of Daugavpils University on October 15, 2019, Minutes No 14.
Aleksejeva L. (Ed.) Reģionālais ziņojums. Pētījumu materiāli. 14 (2018/2019). = Regional Review. Research papers. 14
(2018/2019). Daugavpils: Daugavpils Universitātes Akadēmiskais apgāds “Saule”, 2019. 88 lpp.
EDITORIAL BOARD
Editor-in Chief: Ludmila Aleksejeva Dr.oec., Head of Department of Economics and Sociology (Daugavpils
University, Latvia)
Assistant Editors: Elita Jermolajeva Dr.oec., Lead Researcher (Latvia University of Life Sciences and Technologies,
Latvia; Fellow Member of Regional Studies Association, RSA Ambassador for
Latvia)
Vladimirs Meņšikovs Dr.sc.soc., Professor (Daugavpils University, Latvia)
Vilma Atkočiūniené Dr., Professor (Aleksandras Stulginskis University, Lithuania)
Givi Bedianashvili Dr., Professor (European University, Georgia)
Veronika Bikse Dr., Professor (Liepaja University, Latvia)
Jonathan C. Borg PhD, Professor (University of Malta, Malta)
Tom Christoffel MSc. (Editor/Publisher of Regional Intelligence – Regional Communities, LLC;
Fellow Member of Regional Studies Association, RSA Ambassador for U.S., USA)
Anabela Dinis PhD (University of Beira Interior, Portugal)
Gloria Durka PhD, Professor ret. (Fordham University, USA)
Aija Eglīte Dr., Associate Professor (Latvia University of Life Sciences and Technologies, Latvia)
Mathias Ellger MSc. (Urban and Spatial Development, Germany)
Martin Ferry PhD, Research Fellow (University of Strathclyde, European Policies Research
Centre, UK)
Andrew Francis Fieldsen PhD (Research Institute of Agricultural Economics, Hungary)
Sergejs Hiļkevičs Dr., Professor (Ventspils University College, Latvia)
Jorn Holm-Hansen PhD, Senior Researcher (Norwegian Institute for Urban and Regional Research,
Norway)
Dzintra Iliško PhD, Associate Professor (Daugavpils University, Latvia)
Igor Kabashkin Dr.hab., Professor (Transport and Telecommunication Institute, Latvia)
Katja Lahikainen MSc. (Lappeenranta University of Technology, Finland)
Inta Ostrovska Dr. (Daugavpils University, Latvia)
Mariana Mateeva Petrova Dr., Professor (St. Cyril and St. Methodius’ University of Veliko Tarnovo, Bulgaria)
Iveta Mietule Dr., Professor (Rezekne Higher Education Institution, Latvia)
Olga Mrinska Dr. (European Bank for Reconstruction and Development, United Kingdom;
RSA Ambassador for Ukraine)
Tatjana Muravska Dr., Professor (Centre for European and Transition Studies, Jean Monnet Centre
of Excellence, University of Latvia, Latvia)
Robert Pietrzykowski PhD (Warsaw University of Life Sciences, Poland)
Garri Raagmaa PhD, Associate Professor (University of Tartu, Estonia; Fellow Member of
Regional Studies Association, RSA Ambassador for Estonia)
Baiba Rivža Dr.hab., Academician (Latvian Academy of Sciences), Professor (Latvia
University of Life Sciences and Technologies, Latvia)
Aleksejs Ruža Dr., Associate Professor (Daugavpils University, Latvia)
Biruta Sloka Dr., Professor (University of Latvia, Latvia)
Henrihs Soms Dr., Professor (Daugavpils University, Latvia)
Jānis Teivāns-Treinovskis Dr., Professor (Daugavpils University, Latvia)
Gocha Tutberidze Dr., Professor (European Teaching University, Georgia)
Viktor Voronov Dr., Researcher (Russian Academy of Sciences, Russia
Andra Zvirbule Dr., Professor (Latvia University of Life Sciences and Technologies, Latvia)
EDITORIAL STAFF:
Ludmila Aleksejeva (chairperson)
Dmitrijs Oļehnovičs, Liene Briede (the English language editor), Inta Ostrovska (Latvian and Russian language editor)
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Žurnāls “Reģionālais Ziņojums” ir starptautisks reģionālistikai veltīts zinātnisko pētījumu materiālu krājums
angļu valodā dažādās sociālo un humanitāro zinātņu jomās: ekonomikā, socioloģijā, sociālajā psiholoģijā,
vadībzinātnēs, tiesību zinātnē, vēsturē, kā arī saskarzinātnēs. Žurnāla raksti tiek anonīmi recenzēti, un tas tiek
izdots vienu vai divas reizes gadā kopš 2004. gada. Rakstu kopsavilkumi publicēti latviešu un krievu valodā.
The journal ‘Regional Review’ is an international collection of articles in English focused on the regional
issues. The articles present the results of scientific research in various fields of social sciences and the
humanities: economics, sociology, social psychology, management, law, history and interdisciplinary research.
This is a double-blind peer reviewed journal published once or twice a year since 2004. Summaries of articles
are provided in Latvian and Russian.
Журнал “Региональный Вестник” – международный сборник научных статей по регионалистике на
английском языке, который отражает результаты исследований в области социальных и гуманитарных
наук: экономики, социологии, социальной психологии, менеджмента, права, истории, а также
междисциплинарных направлений. В журнале поддерживается двойное “слепое” рецензирование статей,
журнал издается один или два раза в год с 2004 годa. Резюме опубликованных материалов – на
латышском и русском языках.
In the articles published in ‘Regional Review’ the authors’ style has been preserved and they are responsible for
the facts and opinions reflected and the terminology used in their articles.
No part of this Collection of Articles may be reproduced in any form, by print, photo print, microfilm, or any
other means, without written permission from Daugavpils University.
If quoted the reference to this edition is obligatory.
This volume is supported by the DU Research Project 14-95/10
“Evaluation of smart growth opportunities in Latgale (in district level)”
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Issues of the ‘Regional Review’ are publicly available at:
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Address: Publisher:
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CONTENTS
Inese Kursite, Elita Jermolajeva
PPROJECT MANAGEMENT AS A TOOL FOR BUSINESS DEVELOPMENT ........................... 5
Inna Stecenko, Kristīna Mahareva
AGREEMENT AND FINANCIAL RELATIONSHIPS BETWEEN PARTICIPANTS
IN LATVIAN RURAL TOURISM SERVICES NDC-EXPORT TO THE GLOBAL
AIR-PASSENGER TRANSPORT MARKET ................................................................................... 25
Nadezhda Grishkjane LABOR MIGRATION AND ITS IMPACT TO MACROECONOMIC PERFORMANCE
IN THE BALTIC COUNTRIES 2004–2016 ..................................................................................... 37
Givi Bedianashvili
REGIONAL SOCIAL-ECONOMIC SYSTEMS AND TERRITORIAL STRUCTURE OF
THE COUNTRY IN THE CONTEXT OF MODERNIZATION OF LOCAL
SELF-GOVERNMENT AND ENTREPRENEURIAL ACTIVITY .................................................... 47
Halina Shmarlouskaya
CIRCULAR ECONOMY: DIRECTIONS OF DEVELOPMENT IN EUROPEAN UNION
COUNTRIES ..................................................................................................................................... 58
Anita Kokarevica, Elita Jermolajeva
ECONOMIC ASPECTS OF TOBACCO PRODUCT CONSUMPTION ......................................... 72
Authors ..................................................................................................................................................... 84
General Requirements and Template for the Papers ........................................................................... 85
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Bc.oec., Inese Kursite
Dr.oec., Leading Researcher Elita Jermolajeva
PPROJECT MANAGEMENT AS A TOOL FOR
BUSINESS DEVELOPMENT
The article focuses on study and analysis of project management as one of the business company / organization
management forms for the development. The objective is to project management as a phenomenon of
Management sub-sector and to implement the practical part of the work in order to study project management
approach in the chosen private enterprise – demonstration (or private) company in Latgale region, Latvia. The
project is a process comprising a set of coordinated and controlled activities with definite start and end dates to
achieve a specific objective within the given time, cost and resource limits. The use of project management
approach in a company effects its functional management and interacts with it thus reaching the positive
synergy, which in case of a private enterprise promotes the achievement of the business goal – making a profit –
faster and more effectively. The aim of the article is to answer the question whether the project management is
an effective management form of economic activity. The question of the study: can project management as an
organizational form of a company’s activity improve economic indicators of the company? The main conclusion:
use of project management approach can foster business development and improve economic and financial
performance indicators of the company, on condition that immediate training and capacity building needs of the
cadre are met and planning / control function strengthened.
Key words: project management, business/ organization, structure, team, risks.
JEL code: M21, O22
Introduction
The project management method enjoys increasingly widespread use by companies and
organisations both in Latvia and worldwide, gradually substituting traditional forms of
management. It is predicated upon the rapid pace of scientific and technical development and
the achievements thereof, which can and must be used in the provision of goods and services
in both business and the public sector, in order to maintain better quality and larger quantities,
react promptly to any changes in demand and the overall situation, etc.
The tasks of the research are as follows:
1) to describe some aspects of project management;
2) to analyse economic indicators of rivate company;
3) to study management structure of private company and project management as a part of
it;
4) to develop conclusions and recommendations for improvement of project management of
a private company.
The research methods: monographic and institutional analysis, logically abstract,
statistical and financial analysis methods, comparative and descriptive method. Employees of
the private company have been surveyed; the study used the Theory Z, the Kerzner Project
Management Maturity Model (Kerzner 2001) and addressed the Darnall-Preston Matrix.
In order to study the importance of project management as a sub-branch of management
for the furtherance of business, one must emphasise that the term “project” is defined as “a
stage of planned work or activity that is completed within a specified time period and for a
specific purpose” (Cambridge 2018). The word “project” originates from the Latin word
“projicere”, which means “to change, make changes”, whereas the expression “project
manager” means “someone whose job is to plan a piece of work or activity and organize the
work of all the people involved in it”. Project planning is the process of organising a project
in a manner that would allow it to be completed successfully within the allotted time; project
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finance, project budget means the funds assigned (or borrowed) for investment into a specific
project (Cambridge 2018).
Thus, project management is a process shaped by a range of coordinated and controlled
procedures with a specifically defined start date and end date (deadline), which has a purpose
that meets its special requirements and must be obtained within a specific set of time,
expenditure and resource constraints; today, project management is construed as a specific
manifestation of management that is bound to become considerably more important in the
future, being universally applicable and tailored to a considerable extent to the modern
economic and social requirements. Project management is a science and an art at the same
time. Apart from that, a project is defined by its constraints, that is, a project is a purposeful
activity restricted in terms of (1) time, (2) budget, and (3) personnel.
In order to obtain practical verification of the theoretical findings, the study uses a
Private (Demonstration) company, which operates in the construction industry in the Latgale
Region of Latvia.
Theoretical discussion
Projects and project management date back to ancient times, and, possibly, construction
of the Egyptian pyramids could have been one of the first examples of project management.
In today’s world, project management has been developed as a concept around 1900, along
with rapid development of the construction industry in the USA, which required an approach
to managing construction projects that would ensure performance of a specific scope of work
within the set budget boundaries (at specific costs of materials and human resources) and
completion thereof within specific timelines (Balode 2009).
In 1896, Karol Adamiecki (1866–1933) developed a job performance control chart
(Morris 1994). Henry Gantt (1861–1919) is deemed the originator of modern project
management. He developed planning and control methods to help business companies and
directors thereof deal with their work. Project managers are well familiar with Gantt’s chart,
which allows control over all stages of project implementation – at any time, the project
manager can refer to the chart in order to determine whether the respective works have been
done on schedule or behind / ahead of schedule (A Brief ... 2018).
As pointed out by the Latvian project management expert I. Forands, Gantt’s chart is
simple and transparent, being especially fit for projects of a lesser scale (Forands 2006), while
another expert, A. Balode, emphasises that Gantt “invented the application of line graphics in
skyscraper construction projects” (Balode 2009).
In 1911, Frederic Taylor (1856–1915) described the process optimisation principles in
reliance on his experience of working at a steel processing plant in his work “The Principles
of Scientific Management”: reduce the time required to perform a specific operation and
improve the remuneration system as a motivational measure (A Brief … 2018). According to
him, the principal object of management should be to secure the maximum prosperity for the
employer, coupled with the maximum prosperity for each employee (Taylor 1919). F. Taylor
was completely sure to predict that the principles of scientific management or task
management were going to come alive in the modern world and be implemented universally,
yet he also warned against confusing the essence, or philosophy of management with the
mechanism thereof. Principles of scientific management: science instead of fantasy; harmony
instead of discord; cooperation instead of individualism; maximum possible result instead of
limited results; development of each person's potential in order to attain this person's
maximum efficiency and well-being (Taylor 1919).
The period of the 1950s to the 1980s was the time of development of project
management techniques, e.g., the PERT method and the CPM method, used for developing
project flow charts and maintaining control thereover (Forands 2006):
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PERT, the Project Evaluation and Review Technique method, is well-suited for managing
more complicated projects, allowing to determine 3 (three) project activity scenarios –
optimistic, pessimistic and realistic;
CPM – the Critical Path Method, which defines the shortest and longest project
implementation timelines.
Since the 2000s, software and various applications have become widely available and
found use in the field of management as well, for instance, MS Project, Workzone, Scoro,
Bitrix24 (freeware), daPulse, LeanKit, Planio, Clarizen, Zenkit, OmniPlan, Smartsheet, Team
Gantt (freeware), Workfront, etc. (Balode 2009, Teamgantt 2018).
As proposed by rule 62 of Jerry Madden’s “One Hundred Rules for NASA Project
Managers”, it is not the reluctance to use state-of-the-art technologies that is erroneous, but
rather the opinion that a computer is a substitute for thinking. Rule 65 states that once
engineers used to work in practice, with their hands, and knew how electronics function,
whereas now a computer knows everything, but it will not tell (Madden 2018).
The evolution of project management is conduced globally by IPMA – the International
Project Management Association, founded in 1964 (IPMA 2018). One of the driving factors
for its establishment was the opportunity to use the CPM method in large-scale project
management, which involved risks pertinent to vaguely defined results, varying and
complicated influences, dependence on technical domains and knowledge. IPMA also
maintains its own certification institutes that certify project managers using a four-level
system. It is comprised of numerous national project management associations from all over
the world, totalling to 69, including the Latvian National Project Management Association
(LNPVA 2018).
In Latvia, one of the visionaries of project management as a separate domain is Žaneta
Ilmete, professor of the University of Latvia (Ilmete 2018, Ilmete 2001). In her opinion,
project management is a synergy of 2 concepts – an amalgamation of management, or a
synergy of the functionality concept and the institutionality concept, and project management
ensures the “benefits that can be obtained through the application of project management
methods in business and government administration” (Latvijas ... 2018).
The Latvian National Project Management Association (LNPVA) was founded in 1998.
It is comprised of over 80 individual and corporate members. The goal of the association is to
“conduce comprehensive development of the project management industry in Latvia, ensuring
competitive performance of project management specialists in the local, European and
international market” (LNPVA 2018).
The ability of every single enterprise is essential for the overall development of the
Latvian national economy, which implies the need for lesser costs, optimum human resource
performance, the best possible geographical location, etc. One of the most important aspects,
in the authors’ opinion, is the proper selection of workflow organisation processes, especially
those pertaining to management, at both the top management level and lower levels. The
importance of management / administration is also pointed out by the studies performed
within the period of 2014 to 2018 by the national research programme EKOSOC-LV
“Economic transformation, smart growth, governance and legal framework for the state and
society for sustainable development – a new approach to the creation of a sustainable learning
community” (Rivza 2018, Valsts 2014). Numerous publications by a number of researchers
indicate the relevance of regional development issues and the need for expanding the
opportunities for business, which can be a considerable contribution to the smart development
of Latvian territories, in particular, the Latgale Region (Jermolajeva 2018, Šipilova 2017,
Veipa 2018).
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Research results and discussion
Theoretical materials and global practice on project management define 10 essential
characteristics inherent in a project: innovation, goal orientation, time constraints, limited
resources, dynamism, interdisciplinarity, specific workflow organisation, risk, importance,
type; at that, a project has all of the above characteristics rather than just one or some of these.
The boundaries of this article clearly do not allow describing all of these characteristics,
so, in connection with the application of project management in business, the authors have
decided to restrict the study to just 2 characteristics – specific workflow organisation and risk.
1. Workflow organisation and risks in project management
The project team plays a major role in workflow organisation, and the size of the team
is determined by the magnitude of the project at hand. As stated by Professor H.D. Litke, the
size of a team has both its advantages and disadvantages; if there are 7 or more people on the
team, the management should divide the project into several subprojects and appoint separate
project managers to oversee those, whereas a project team of 5 or 6 persons would be optimal
for working and decision-making whilst possessing sufficient creative potential and
professional knowledge and experience, as such group is of a critical mass, exceeding which
the management should consider restructuring the project team (due to potential increase in
loads or costs, communication issues, complicated exchange of information). A project team
of 3 or 4 people is elastic in terms of decision making and easily manageable. In turn, a team
of 2 persons could develop mutual competition, failing to ensure representation of knowledge
or form a discussion platform (Litke 2003).
All projects are similar in terms of stages thereof, that is, each project goes through
similar stages during its life cycle. Guided by practical experience, the authors deem the
understanding of project stages (or phases), the logical sequence and succession thereof to be
one of the cornerstones of project management. Everything that professional project managers
call project phases (stages) is within the time period between the first date of the initial stage
of the project and the last date of the concluding phase thereof. Each project stage includes
specific activities with unspecified transition borders. A salient attribute of project stages is
that the previous stage must be completed before the next stage can begin. Stages have no
specific start and end dates. Project stages differ from the clearly defined project
commencement / completion dates and milestone dates.
Different projects will have similar phases and phase sequences: commencement
(initiation), planning, implementation, final stage. The main stages will also be similar for
smaller and larger projects; most probably, project managers will also face similar problems
and challenges at each of these stages, so these will only differ in terms of complexity and,
possibly, specific technological nature (Project Management From Simple 2018). A project
has four phases or stages: commencement (initiation), planning, implementation (execution),
and the final stage (closeout).
The project commencement stage (initiation) consists of the activities that must be
carried out in order to begin the project. Traditionally, these activities are as follows: project
kick-off meeting, project team formation, resource identification (e.g., offices, computers,
communication facilities) (Project ... 2018). The project team itemises and specifies the
project plan, if this has not been done in advance; ensures involvement of any concerned
parties, the target audience, decision makers. Practical evidence suggests that a project
manager must always be aware of who and where the target audience is and what is the
manager going to do for its benefit.
The project planning stage includes organisational and preparatory activities. In this
phase, the project team plans and prepares a detailed time schedule, a budget plan, a personnel
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involvement plan, a procurement plan and a project monitoring and control plan. It is to be
noted that planning is a vital element, one of the cornerstones at both the first stage (initiation,
or commencement) and the second stage (planning), an activity that lasts throughout the entire
life cycle of a project.
Project implementation (execution) includes activities aimed at fulfilling the set
objectives. For instance, the main activities of a construction projects would be design and
construction works. In an IT project, this would be software development. Implementation
stage is when the goals of a project are attained. Results of a project are a quantitative and
qualitative expression of the achieved goals, which is in tune with the motto of project
management – “projects are measurable, achievements are measurable, requirements are
measurable”, which is proved by the practical project management experience of the authors.
At the final stage (closeout) of a project, personnel involved in the project is dismissed,
project documents are archived, project finalisation activities are finished (punch list), results
of the project are delivered to the customer, and the project office is closed.
Each enterprise undergoes development and grows to professional maturity before
achieving true excellence (Kerzner 2003, Kerzner 2006). Having used the Kerzner Project
Management Maturity Model (Kerzner 2001) at the demonstration company (which will be
detailed further), the authors of this article mostly received “yes” answers to the following
questions:
1) Does the company maintain a project management system and use it regularly?
2) Does the system have a philosophy that drives the company towards success in terms of
project management?
3) Does the company pay special attention to the planning phase of a new project?
4) Is the company able to minimise expenses and formulate realistic goals?
5) Does the company realise that cost and schedule control is integrated?
6) Does the company appoint appropriate individuals to manage its projects?
7) Does the management generally receive customer-level information rather than project
manager-level information?
8) Does the company focus on results rather than resources?
9) Does the company favour and support efficient communication, cooperation, teamwork
and trust?
10) Does the management reward successful projects and share the success thereof with
others?
11) Does the company focus on early, prompt and effective (including cost-effectiveness)
problem identification and solving?
12) Do project managers use project management software as a tool rather than as a substitute
for planning and communication?
13) Does the company provide training for employees based on the obtained experience and
the findings derived?
However, just the existence and functioning of systems and processes does not mean
that the project management at a specific company has achieved excellence. Excellence of
project management can be observed when all projects have been managed successfully and
individual solutions apply to both the specific project and the benefit of the company in
general. It must be noted here, however, that if all projects of a specific company have been
successful, this most probably means that the company did not take any business risks and
challenges (Kerzner 2003).
Different projects require varying organisational approaches, yet these are always aimed
at the same ultimate goal – efficient implementation of the project; right things do right;
effective and efficient (Project ... 2018). There are several factors that define project
organisation, for instance: the profile (specific nature) of the project; culture, experience and
traditions of the institution implementing the project; culture, experience and traditions of the
10
project manager; knowledge and skills of the project team. Large complicated projects require
the appointment of a separate manager for the discharge of every function, whereas simpler
projects imply that several functions can be performed by a single employee.
The customer plays a major role as pertains to the success of any project. The project
manager communicates with representatives of the customer and is therefore most capable of
motivating them to concentrate and provide the required support to the project – this
capability and mission is the top-level manifestation of the manager’s leadership (Project ...
2018). A successful project achieves its objectives considering the customer’s idea and
satisfaction (Darnall 1996).
A project manager is a leader responsible for everything (the executive director level, if
compared to an organisation). The function of a project manager is isolated from the technical
manager’s function and, while the project manager can in fact direct the technical team of a
project as well, the primary function of a project manager is to direct, formulate the vision of
the respective project, lead the team on its way to achievements, provide the means and
methods required in order to achieve the result (success). A project manager creates a goal-
oriented and time-focused project culture and requires specific skills and abilities: to organise
projects, develop project budgets, activity plans, time schedules (Darnall 1996).
As evidenced by the practical experience of the authors, the aspect to be emphasised in
particular is the cohesion of the time schedule with the project budget implementation flow
and the objectives and results to be achieved – Table 1 shows a problem solving and
responsibility matrix. The customer is involved and delivers decisions in respect of all issues,
the scope and structure of works, budget, quality, changes. Involvement of the project
manager is of no lesser importance; this person reviews issues and takes decision on the
scope, structure of works, budget and changes.
Table 1
Project management and implementation responsibility allocation matrix
Product name Scope of
works
Structure
of works Budget Quality
Change management
procedures
Accept
changes
Project management
committee
Representative of the
customer
Project manager
Technology team
Financial team
Time schedule team
Source: authors’ chart based on (Project ... 2018).
From the standpoint of project organisation, implementation of a project requires 7
functions, which are as follows: funding, project management, technical management,
control, procurements, quality assurance and the administrative function. These are
interrelated, yet subordinate to the project manager; apart from that, the control function
allows tracing and identifying any deviations from the approved standard and choosing
appropriate preventive or corrective tactics in a timely manner.
Risks are inherent in any project, and it is up to the project team to determine the type
and level of the anticipated risks, develop and implement an appropriate risk prevention or
mitigation plan. Risk is defined as the probability of occurrence of a specific event within the
life cycle of a project, which would have a negative impact on the achievement of the project
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results (Project ... 2018). Risks must be identified appropriately to the type, complexity and
phase of the project at hand.
Figure 1. Project risk management process
Source: developed by the authors based on Risku vadības process. Vadlīnijas projektu risku pārvaldībai (2013)
(Project Risk Management Guidelines) (www.viaa.gov.lv).
Risk management is a set of activities defined by a project, which is to be implemented
in order to result in the identification and control of risk factors and implementation of
appropriate measures. Objectives of risk management: protect the fund recipient from
potential losses; promptly identify potential developments that could affect the
implementation of a project and attainment of the goals thereof, as well as take adequate
countermeasures. Risk management applies to all activities carried out during the life cycle of
a project.
Improper risk management and internal control procedures are a problem faced by
project managers and entailing consequences they have to deal with, at the expense of greater
resource expenditure and jeopardised achievement of results. There are two main risk
factors – delays and risks at the final stage of a project, as well as a number of risks that must
be studied and taken into account – project management flaws, vaguely formulated project
objective, conflicts, etc. (Forands 2006):
1) Project management flaws: reason – incompetence or unprofessional actions of the
personnel; for instance, improperly developed project plans, untimely identification of
risks;
2) Vague project objective: reason – vaguely or imprecisely formulated project objective or
misunderstanding thereof, insufficient communication with the project team for objective
clarification; each project (and project objective) is unique, so one could say that the
project team has no experience of implementation of a specific project, and due to that, it
is advisable for any project team to discuss and comprehend the objectives of a project at
the initial stage thereof;
3) Any project has its time constraints: improper scheduling or ignoring the schedule entails
implementation risks that result in budget deficit and poor quality;
4) Conflicts: conflicts may arise with the customer, project personnel or other persons.
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2. Corporate project management
The Darnall-Preston Matrix, or the project organisational complexity index, can be used
as a tool for assessing any project: the volume (scope) of a project, its organisational structure,
technological innovation, technological knowledge. It uses ratings within the range of 1 to 5,
with 1 being simple and 5 – complicated. Essentially, prior to commencing a project, its team
assesses the extent to which the project is new and whether it is compatible with the existing
experience and project management culture. The Darnall-Preston Matrix allows assessing
whether the project requires “leaving the comfort zone”, or the extent to which it is
compatible with the existing competence experience (Project ... 2018).
Enterprise management is traditionally a continuous process determined by both the
internal and the external environment. Company owners and directors must be capable of fast
and adequate reaction to challenges of the ever-changing external environment and
opportunities offered by the market. Nowadays, project management is no more a narrow
field employing just a handful of experts. Project management methods are ever more widely
used in both business and public sector.
A project is a tactical tool for the implementation of a company’s strategy.
A company may:
Implement a project by itself, using its own resources and its own project manager,
Draw on the resources of an outsourcer to act as the project manager or hire an expert
project manager, if none were available up to date,
Contract a project management company to oversee the implementation of the entire
project.
The management approach is used to ensure a compan’s operations and conduce the
implementation of a project (Fiedler 2018). A project is a unique event, yet it does not exist in
isolation, separately from the organisation / company. There are different organisational forms
of the structure of interaction between companies and projects. Use of the project
management approach in the public environment, non-government sector and private business
has become ubiquitous. Relying upon the developments of different authors and the personal
experience of the authors hereof in project management, one can determine the most essential
problems and mistakes in the domain of project management:
A project manager must always be aware of the existence of a chance (risk, to be exact)
that a project could be prepared and planned in reliance upon incomplete (or false,
inappropriate, outdated) information.
Project managers can make a mistake by underestimating the importance of the project
plan, often seeing it as a purely formal and redundant document.
Increased loads at the final stage of a project are the result of yet another mistake
characteristic of inexperienced project managers. For example, at the planning stage of a
construction project, one must try to plan works in a manner that would make sure that
maximum load is handled at the medium stage of performance, rather than at the
concluding stage. Otherwise, performance of the project contract on schedule is put at
risk, as well as timely achievement of the planned results.
A project plan must provide for a time reserve, else there is going to be risk of failure to
complete the project on time.
Striving to do everything on one's own. One must avoid situations when a project
manager starts doing everything on his/her own; the project manager must exercise
general management of the project rather that perform the duties of other members of the
project team.
13
The axiomatic base of the project quality management process is to prevent any
mistakes rather than identify and rectify these (Forands 2006). This does not mean that a
project manager should ignore any identified errors rather than try to rectify these, if that is
the case. One must keep in mind that fault rectification always requires excess resource
consumption, including unforeseen financial expenditure, contract performance delays,
ensuing penal sanctions, etc. How would a project manager act to avoid mistakes? There is
just one answer – precise keeping in line with the project plan and the 5 functions of general
management (planning, organisation, coordination, motivation, control).
Project managers can use a variety of methodologies to prevent risks or mitigate the
impact of consequences. The SMART system offers a simple approach that a manager of any
project can rely on in order to make sure whether the project plan, activity plan, project
finance plan and other project documentation is drawn up with proper substantiation and
whether this information can be used for the implementation of and control over the project.
The acronym SMART is derived from the first letters of its components (see Table 2),
although it has several slightly different variations (Haughey 2017).
Table 2
SMART and SMARTER project goals
SMART Definition of goal setting
S Specific, siginificant, stretching
M Measurable, meaningful, motivational
A Agreed upon, attainable, achievable, acceptable, action – oriented
R Realistic, relevant, reasonable, rewarding, results – oriented
T Time – based, time – bound, timely, tangible, trackable
E Ethical, meets high ethical standards
R Recorded, the recording is necessary for planning, monitoring and progress review
Source: authors’ chart based on Smart Goals (Haughey 2017).
Corporate management must be capable of determining the need for application of
project management methods in order to meet the requirements of a company's economic
operations, that is, which activities are to be defined and implemented as a project. In
particular, this is true for commercial enterprises operating in the circumstances of a free and
unforeseeable market, competition and resource constraints.
In order to switch to the project management method, a company has to do a certain
amount of restructuring. Restructuring, in this instance, means that employees must be
provided with information on the assignment at hand, a project manager and a project team
must be appointed, resources must be allocated and departments have to be reshaped. Project
management is only appropriate for use by a company if such use would yield any actual
benefits. As soon as a company decides to adopt the project management approach, the
company management starts changing through interaction with project management; certain
routine procedures will have to be abandoned and substituted with new ones. In fact, this
implies reallocation of authority and influences, changes in the way employees think. Apart
from that, this would require specific knowledge – project management knowledge.
3. Corporate construction project management
For the purpose of studying the application and efficiency of the project approach
within the boundaries of an organisation, the authors have selected a private company (the
name and other identifying information is not disclosed for confidentiality reasons), or the
demonstration company. It has been operating in the construction sector for over 5 years, and
14
construction is its core activity as per the 2nd edition NACE classifier (Saimniecisko ... 2018).
The study has revealed a number of flaws in respect of project management by the private
company, e.g.: failures to keep with the project timelines, approved budget overruns, lack of
communication and exchange of information, etc.
The company is one of the largest construction enterprises in the Latgale Region; in
terms of scale, it belongs to the SME group as per the classification system of the European
Union – a medium enterprise (MVU 2018). A study of the financial turnover of the private
company and comparison thereof with the proportion of construction activities leads to the
inference that the volume of construction amounted to 93% of the net financial turnover at the
average.
The net turnover dynamics enjoyed growth within the period of 2012 to 2014, but then
reduced from 11.7 M EUR to 4 M EUR in 2016 – that is, more than 2 times less. From the
interviews taken at the private company, one may infer that the reduction in turnover was
associated with changes in the construction legislation and the shift of EU programming
periods. The new EU co-funding allocation period of 2014 to 2020 started in 2014; however,
the implementation of projects commenced during the previous program was still being
finalised in 2014 (the N+2 principle). One may assume the period from 2014 to 2016 to be a
levelling period between the two funding program stages. In practice, the volume of public
design, field supervision and construction services has only started increasing in 2017, along
with the ensuing considerable increase in prices.
Figure 2. Dinamics of turnover of demonstration company,
2012–2017, EUR ex VAT
Source: developed by the authors based on demonstration company’s reports for the period of 2012 to 2017.
The linear trend line of the financial turnover of the private company shows that the
total average turnover in dynamics over the six years studied was slightly over 6 million EUR
ex VAT (see Figure 2).
Other performance indices of the private company are depicted in Figure 3 –
profitability, solvency and working asset circulation. In 2014, when the turnover was at its
peak, the company's profitability index was 5.7%. In 2015, however, the profitability indices
have decreased almost four times and only amounted to 1.5%, so the company was in
dangerous proximity to the bankruptcy risk margin. In 2016, profitability increased to 2.2%,
having then been retained at the same level of 2.2% in 2017.
15
Figure 3. Profitability, solvency and working asset circulation indices of
demonstration company, 2014–2016, EUR ex VAT
Source: developed by the authors based on demonstration company’s reports for the period of 2014 to 2016.
The authors infer that the company’s asset profitability within the period under review
has reduced – each 1 euro invested by the company yielded 5.7 cents of profit in 2014, 1.5
cents of profit in 2015, and 2.2 cents of profit in 2016 (and 2017). The company’s solvency
index underwent no significant changes, yet in 2016 (and 2017) it just about reached the
critical margin of 1.00, indicating that the company was in the solvency risk zone.
Sector-specific issues have to be taken into account, as the performance of construction
works implies initial investment of one’s own funds (construction materials, equipment,
machinery, salaries and other costs), and payments are only received afterwards, after the
acceptance of the monthly scope of works delivered; apart from that, the customer withholds a
share of about 5% of each monthly payment as warranty collateral, which is only paid after
the performance of certain requirements. Thus, one can infer that the company is short of
working assets – contractors often have to invest their own resources at the initial stage of
construction and wait for the performed construction works to be paid.
In the future, the administration of the private company would have to opt in favour of
projects with a well-balanced risk-to-efficiency ratio. Inasmuch as the private company
acquires a greater scope of project implementation right in the course of a public procurement
procedure, it must be kept in mind that the most common bid selection criterion within the
boundaries of a public procurement procedure is to select a proposal that fits the requirements
of the procurement procedure and comes at the lowest proposed price. This implies the need
for a company to assess the costs of its proposal very carefully. In case of unforeseen works,
the private company must follow the customer’s decision on the performance or non-
performance of such works, and the time required for the customer to deliver the respective
decision, which, in turn, extends the project (contract) performance time and, respectively, the
costs incidental to site maintenance. Another aspect to be taken into consideration is that
construction projects have lengthy timelines. For instance, on January 1, 2018, amendments to
the legislation took effect, increasing the social tax rate. This caused an unexpected rise in the
cost of construction projects, whereas the customers, in most cases, refused to have the
contractual price raised by the difference caused by tax rate increase, so these costs had to be
borne by the private company at the expense of its own profit or through cutting other cost
items down. The actual amounts of extra tax paid at the increased rate varied between several
hundred euros and several thousand euros, depending on the project.
16
The private company used the project-based approach to the implementation of
construction projects. Each construction project is legally based on a construction contract,
which is made between a specific customer and a contractor (charged with the performance of
construction works). A construction project is hereinafter construed as a “project” per se (a
unique activity aimed at the achievement of a specific result in accordance with the respective
action and time plan, restricted in terms of time and budget, with an appointed project
manager and project team and other characteristics of a project by definition). The private
company’s turnover (EUR ex VAT) and the number of projects are specified in Table 3.
Table 3 shows that the company’s turnover was at its peak in 2014, along with the
smallest number of projects implemented (33 projects). The information made available by
the private company shows that a single contract of 2014 was worth about 3 million EUR. As
specified by the company’s employees during the survey, construction contracts used to be
larger in terms of amounts in 2014, though less numerous. The authors assume that it is more
lucrative for the company to deal with projects of greater magnitude, even though these are
less numerous, as this consumes less administrative resources.
Table 3
Changes in the private company’s turnover and the number of its projects
over the period of 2014 to 2017
Year Financial turnover,
EUR ex VAT Changes in turnover, %
Number of projects
implemented
2014 11,690,760 Assumed as 100% 33
2015 6,896,305 -41.01% 78
2016 4,001,149 -41.98% 44
Source: developed by the authors based on annual statements, project database and unpublished materials of the
private company.
According to the organisation structure description proposed by V.Praude and
J.Beļčikovs, the private company that is subject to this analysis is a matrix-type company
(Praude, Beļčikovs 2001). Its functional units (departments) are integrated into project units
(the project team) for the purpose of developing new outcomes or achieve a set goal, and
these teams have both a functional leader (head of the respective department) and a project
manager (leader of the project team). Companies of such matrix structure are best at
identifying and, if required, mobilising the resources necessary for project implementation.
One must keep in mind that the revenues from a project are also allocated to cover a
company's fixed costs, yet, as it is known, resources are limited. Therefore, a company and its
employees have to face a range of problems inherent in the matrix-type organisation structure:
“struggle” for limited resources between functional leaders and the project manager,
conflicting employee roles and staff overload, project-related issues with less influential
project managers, increased administration costs, etc.
Projects typically implemented by the company are (in accordance with the
classification suggested by I.Forands) numerous organisation projects (Forands 2006, Forands
2002). In this regard, it is to be considered that the legal and contractual responsibility for the
implementation of a project lies with the company as the master contractor and responsible
builder. In the course of implementation of a project, the company appoints and engages its
own project managers, as well as plans its other resources for allocation in project
implementation.
The company implements its projects in cooperation with other companies, which
specialise in their respective specific industries, e.g., architects, heat supply contractors,
17
construction material suppliers, etc., and each of these bears responsibility for the scope and
quality of the work entrusted thereto, whereas the general contractor is responsible for the
performance and quality of all works (the project) as a whole. Essentially, project partnerships
are thus established. In the legal sense, this could be an association of persons bound by a
cooperation agreement between partners, or officially nominated and engaged subcontractors
(contract, service, delivery agreement).
The structure of the private company is comprised of two principal units: the
construction department and the administrative department. Personnel of the construction
department includes construction project managers, project finance coordinators, technical
project secretaries, construction work managers, construction experts, taskmasters,
procurement officers and other specialised personnel. The administrative department is
comprised of the company’s management, accounting, document management, procurement
and labour protection divisions. If granted the right of contract, the company's management
assembles a project team: a project manager, a project finance coordinator, a technical
secretary, an executive construction manager, an assistant construction manager, an
occupational safety expert, an electrical safety expert, etc. Other employees may be involved
at different stages of implementation on an as necessary basis, e.g., lawyers, labour safety
experts, quality and internal audit experts, cost estimators, economists.
The authors have analysed the projects of the private company and developed a
construction project profile using a range of parameters (see Table 4).
Table 4
Profile of the construction projects of the private company
by types and implementing entities
No. Parameter Description Notes
1 Implementation
level
Local, regional
projects
Local projects are implemented in a city or a village, and its
results are used by the locals – a shop, for instance. Regional
projects concern the availability of specific services for the
population of more than 2 municipalities, e.g., a regional
cultural centre, a hospital, a school.
Coverage share: 80% of regional importance
2 Volume Small, large
projects
Project budgets by categories:
Large: > 1 000 000 EUR
Medium: 500 000–1 000 000 EUR
Small: 100 000–500 000 EUR
Micro: < 100 000 EUR
Coverage share: 80% of medium volume
3 Duration Short to medium
term
Project durations by categories:
Long-term: > 1 year
Medium-term: 0.5–1 year
Short-term: < 0.5 years
Coverage share: 80% medium-term
4 Implementing
entities External projects
Create a socially useful and persistent result
Coverage share: 100%
5 Type Investment
projects
Erection of buildings and structures, which requires investments
into infrastructure development and service availability.
Coverage share: 100%
6 Responsibility
Master (main)
construction
contractor or
subcontractor
Up to 2015 – mostly as a subcontractor. Starting from 2016–
2017 – master construction contractor in 90% of projects
Source: developed by the authors based on the project database and unpublished materials of the Private
company.
18
Implementation of a construction project is governed by the General Construction
Regulations (Vispārīgie … 2018). The private company only implemented projects within the
territory of Latvia. A construction project may be headed by an appointed project manager
who is or is not a construction expert. Experience of the private company shows that projects
of smaller volume imply that the executive construction manager is the project manager at the
same time.
Using a matrix developed in reliance upon the findings of William Ouchi (1981),
Thomas P. Peter and Robert H. Waterman (1982) and the interviews with employees of the
private company, the authors have selected and outlines the values that deliver the most
precise description of this company's management style and construction project management
model. This resulted in the development of a hybrid model management description of the
private company in comparison to the project management model description (see Table 5).
Table 5
Comparison of the private company and the project models (using Ouchi’s approach)
No. Criterion
Model types
American Japanese Z hybrid model Project
environment
1 Duration of work Short-term Life-long Long-term Specific period
2 Decision making Individual Cooperative Cooperative Cooperative
3 Responsibility Individual Cooperative Individual Individual
4 Development rate Fast Slow Slow Fast
5 Control mechanism Direct control Informal control Control system Control system
6 Career type Specialisation Long-time Medium Special
7 Friendly relations None Single family Single family Single family
8 Value base * Individual Group Group* Group*
* Criterion added by the authors
Source: developed by the authors in reliance upon Menedžments (Praude, Beļčikovs 2001).
The authors find that the company’s management is characterised by parameters
inherent in both the American and the Japanese model. For instance, the average length of
employees’ career with the company is up to 3 years, which is rather described as short-term
employment more characteristic of the American model, rather than the Japanese model.
Decision-making process employed by the company is individual, and the burden of making
decisions lies mostly with top-level management, which is also inherent in the American
model. Individual responsibility and specialisation are also more characteristic of the
American model. The difference from the American management model is the formation and
nurturing of friendly relations characteristic for this company within the project environment
(“single family”), as well as group values, which both is derived from the Japanese model.
It is be noted here that the company does not use informal control, but does have formal
control measures in place (work performance plans, time schedule, finance flow plan,
intermediate result achievement plan, scope procurement plan, revenue and profit plan, etc.).
Employees (department heads, project managers, construction work managers) must carry out
a regular analysis of the work within the boundaries of their competence (e.g., fuel economy,
discounts attained through volume economy, analysis of the involved contractors and
suppliers, reduction of administrative costs, etc.).
Parameters such as the length of employment, individual decision-making and
responsibility, specialisation, functioning of the control system are relatively similar in both
the company management model and the project management model. One can thus infer that
the company’s management makes active use of project management principles and
19
approaches. Risks that the company’s management can face concern the delivery
(articulation) of its individual solutions to lower management level and control over the
implementation thereof (see Table 6).
Table 6
Control of the risks identified in respect to construction projects
WPP Work performance plan
Project
A set of actions taken by the contractor in order to achieve the set goals, results within
the period provided for by the respective contract and within the budgetary boundaries
imposed by the terms and conditions of a specific procurement.
Project [name of the technical or construction project]
Contract Contract on the performance of construction works. Usually in accordance with the draft
contract included in the documentation of the public procurement tender.
Subcontractors,
suppliers
Subcontractors and suppliers engaged, subject to the Customer's approval, for the
performance of separate works and / or deliveries in order to ensure attainment of the
project goals.
RC
Receipt Control: Control upon receipt of materials. Objective: determine whether the
materials and products (deliveries) supplied for the performance of works meet the order
form and specifications (certificates of the manufacturing plant, vendors' data sheets.
compliance certificates, declarations of performance). Improper materials are rejected
and returned to suppliers along with a cover letter describing the reason for rejection.
TRA
Tracking: Traceability and identification of materials. Objective: ensure traceability of
materials and products (deliveries). At every stage of construction works, the contractor
maintains and identification system and is liable to provide documentation that certifies
that the system is traced for the entire duration of its production, implementation and
trial period.
PC
Process Control: Process control in the course of production and installation (visual
control and/or testing). A list of materials subject for inspection must be prepared by the
Contractor prior to commencing the works. The contractor may use the standard ISO
form or develop its own form for a specific control procedure.
VC Visual Control: Visual control. Control officers use sensory organs to document that
control has been performed.
T Testing: Testing methods: Control of works through the use of measuring instruments
and documentation of control operations.
FC Final Control: Final control of the completed works and documentation on how the
control measures were implemented.
FAT Final Acceptance Testing: Final Acceptance Testing. Work performance trials before
commissioning, documentation thereof.
Source: developed by the authors based on the project database and unpublished materials of the private
company.
In cooperation with the customer within the boundaries of construction projects, the
management of the private company is generally represented at several levels:
Authorised legal representatives of the customer and the contractor (Board Member,
Board President), who signed the project implementation contract, will sign other
essential documents associated with the development of the project;
Project management committee. In case of the demonstration company, the management
committee consists of several major executive representatives of the customer and the
contractor, possibly also experts representing specific industries; their main job is to trace
the project development progress, provide support in solving vital issues, decide on the
approval of financial statements.
A project workgroup that includes representatives of other parties appointed to act at the
operating project management level, e.g., the project manager, an accountant, specialised
20
work managers, etc. The workgroup deals with operating issues and ensures the
implementation of a project at a daily level in accordance with the existing plans.
The project team headed by the project manager is directly responsible for planning,
organisation, implementation and control of the project.
The following parties are involved in the process of decision making for the private
company:
Owners of the company (determine the amount of overhead expenses and profits from
projects, offer candidates for the position of the project manager and for the project team;
determine the strategic orientation of the project and the company in general);
Company management (board members, directors, chief accountant, chief construction
engineer), who, in fact, comprise the management committee on part of the company
(determine the team composition for each individual project, the budget and other
resources, time schedule, internal control mechanisms, tactical project development
issues);
Project manager and the project team – ensure day-to-day implementation of a project in
accordance with the approved plans and budget.
Various projects are managed by the private company through 4 permanent project
managers, and a certain share of these functions is delegated to some 10 construction work
managers. Employees have been trained in project management by means of different
educational activities, even though this is not a regulated profession, and Latvian legislation
does not require the implementation of construction projects to be managed and overseen by a
certified project manager. Considering that the policy of the company makes provisions for
staff training and development, the acquired knowledge in project management help project
manager implement the projects at hand. The authors assume that the skills and knowledge of
a project manager yield positive synergy with the special knowledge and skills of a
construction expert, as the private company finds it advantageous to employ people with a
broad spectrum of skills at the project management level.
In 2018, the survey of 14 employees took place, comprising 5 blocks of questions
(Privātā … 2018). Survey among the company’s personnel contained a question regarding the
educational needs of the project team, to which its members responded, specifying the
knowledge they thought they needed for professional development: project management with
specialisation in construction projects; project management and internal nomenclature,
accounting, document management; AutoCAD; MS Office Excel; MS Project; cost estimation and drawing up statements of completed works.
One may infer that the employees immediately involved in project implementation still
mostly deem it essential to improve their professional competence and perfect their
knowledge in the realm of project management. Similar educational needs may also exist in
other companies of the region. Therefore, one of the solutions would be to organise
professional project management studies at one of the higher education institutions of the
Latgale Region.
Employees who participated in the survey also emphasised the need to conduce personal
growth along with professional development. Project managers think that their opinions have
to be taken into account more frequently in the setting of any critical situations related to a
project. On the other hand, this means that whenever project managers delegate any share of
their decision-making authority, they have to provide control and responsibility mechanism
instruments in order to ensure monitoring and assessment of the results of any implemented
solutions. The considerations stated above lead to the inference that a project manager at this
specific company has less professional influence than a functional manager. If a certain share
of the desired training would target personal growth within the context of project
management, it would give the training extra added value and let employees assume a greater
share of responsibility for the outcomes of a project.
21
In order to build capacity and assimilate best practices and experience, the
demonstration company regularly assesses project management approaches and the
implemented projects, in order to use the findings derived therefrom for performance
improvement, but only does it by its own efforts. The company might benefit from
contracting an external consultant, who could perform such studies and analyses. H. Kerzner
also deems it reasonable to engage consultants who have studied the experience of multiple
companies and would be able to share it; apart from that, he points out the two major success
factors of a project (Kerzner 2006):
1) intense and regular employee training (project management tools, latest construction
technologies, innovative products);
2) project team autonomy (each project team has its own leader who manages the entire
work of the team, bears responsibility for it and reports to the immediate supervisor on a
daily basis).
Having studied the materials of the private company (annual statements, operational
data, system descriptions, project database) and summarised the information obtained from
employees through interviews, the authors have identified a number of problems concerning
project management with space for development:
Competition between functional managers and project managers;
Isolation of project management from the decision-making process, where decisions are
only made by owners and functional managers;
Failure to comply with project timelines, which is most probably affected by employee’
uncertainty in respect of retaining their jobs and regular income;
Failure to comply with the project commencement and completion deadlines and
deviation from the project objectives;
Project managers were not in control of the schedules and plans of their projects;
Project managers did not deem these critical for the success of a project, neither did they
treat compliance with the project plan as essential or realise that the quality of their work
could be poor (improper), as the demonstration company had no project manager
assessment and motivation programs in place;
Project managers were not properly aware of all the actors involved in the
implementation of a project and their competences;
The project budget was exceeded.
In general, the authors infer that the project management-related problems faced by the
private company have an adverse effect on its economic and financial performance indices.
Even though the company’s economic indices were positive within the period of 2014 to
2017, one can identify a general trend towards deterioration, as compared to the potential
quality level. The private company is definitely capable of working much more efficiently, as
well as to ensure much more efficient allocation of the resources at its disposal, provided that
it is going to pursue development in respect of project management and convert the identified
problems to opportunities, that is, define problems as opportunities by means of setting
achievable goals and results, as well as the actions to be taken for the purpose of achievement
thereof.
Conclusions and recommendations
1. A project is a process with specific characteristics, and project management is a universal
management tool and a specific, universally applicable management manifestation form
meeting the requirements of today.
2. A project manager has an important role within a project and can define the essence of
project organisation before the respective project is commenced, using the Darnall-
22
Preston Matrix to assess 4 parameters – the scope of the project, its organisational
structure, technological novelty and technology experience, in order to determine whether
the project is compatible with the existing project management experience of the
implementing person or entity, or whether it requires new methods to be applied.
3. The company selected by the authors (referred to herein as the private company or the
Demonstration company) uses the company structure matrix approach. Project
management is one of the organisational forms of the company's operations, and the
result thereof amounts to over 90% of the core economic operation turnover. A total of
155 projects was implemented over the period of 2014 to 2016, of which 80% are
projects of regional importance, medium volume (up to 1 million EUR) and medium term
(up to 1 year) that resulted in the creation of socially important infrastructure: hospital,
school, public and production buildings.
4. In order to improve quality management at the private company, detailed written project
management procedures have to be developed in respect of each function and life cycle
stage of a project, as well as the project structure and project parameter characteristics.
From the standpoint of usefulness, the existence and availability of such guidelines would
allow procedure unification, economy of the private company’s resources and easier and
faster comprehension of the context and progress of a project by project managers.
5. The private company would have to introduce work quality assessment criteria for project
managers – the “Project Manager Excellence Criteria”, so that project managers would
know, realise and direct their professional performance towards these criteria defined by
the private company. The basic criteria could be, for instance, (1) the development of a
project implementation manual for a specific project, (2) updating and observance of the
time schedule, (3) updating and observance of the budget, (4) project team management,
(5) risk management and elimination, (6) achievement of the target profit level.
6. It would be preferable for the management of the private company to implement an
economic motivation program for project managers, so as to conduce the synergy of
project management efficiency and successful results, as well as personal interest in
successful implementation of a project. For example:
– to pay the project manager a bonus of 3% of the profits received from each of the
projects headed by him/her;
– to pay the project manager a bonus amounting to 3% of the amount of economy
achieved within the boundaries of his/her project (economy of materials, through
efficient technical solutions, human resource consolidation, etc.);
– to summarise the performance indices of the projects headed by the project
manager within a year and pay a bonus in the amount of one salary in case of a
positive rating.
7. Considering the increasingly widespread use of project management methods, as well as
the needs of EU-funded projects and educational requirements of project managers, it
would be beneficial to offer opportunities for professional higher education in the Latgale
Region.
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24
Valsts pētījumu programma 5.2. “Tautsaimniecības transformācija, gudra izaugsme, pārvaldība un tiesiskais
ietvars valsts un sabiedrības ilgtspējīgai attīstībai – jaunas pieejas ilgtspējīgas zināšanu sabiedrības veidošanai
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Kopsavilkums
Projektu vadība kā instruments uzņēmējdarbības attīstībai
Rakstā tiek pētīta un analizēta projektu vadība kā viena no uzņēmuma/ organizācijas attīstības vadības formām.
Raksta mērķis ir analizēt projektu vadību kā menedžmenta apakšnozares fenomenu un praktiski izpētīt projektu
vadības pieeju konkrētā privātā uzņēmumā jeb demonstrācijas uzņēmumā Latgales reģionā (Latvija). Projekts ir
process, ko veido koordinētu un kontrolētu norišu kopums, kuram ir noteikti sākuma un beigu termiņi un kura
īpašām prasībām atbilstošais mērķis jāsasniedz, iekļaujoties atvēlētajos laika, izmaksu un resursu ietvaros.
Projektu vadības pieejas izmantošana organizācijā ietekmē tās izmantoto funkcionālo menedžmentu un
mijiedarbojas ar to, panākot pozitīvu sinerģiju, kas privātā uzņēmuma gadījumā veicina uzņēmējdarbības
mērķa – peļņas iegūšanas – sasniegšanu ātrāk un efektīvāk. Raksta mērķis ir rast atbildi uz jautājumu, vai
projektu vadība ir efektīva saimnieciskās darbības vadības organizatoriskā forma. Pētījuma jautājums: vai
projektu vadība kā uzņēmuma darbības organizatoriskā forma var uzlabot uzņēmuma saimnieciskos rādītājus?
Galvenais secinājums: projektu vadības pieejas izmantošana var sekmēt uzņēmējdarbības attīstību un uzlabot
uzņēmuma darbības ekonomiskos un finanšu rādītājus, bet pie nosacījuma, ka tiek apzinātas un risinātas projektu
vadītāju apmācību un kapacitātes veicināšanas vajadzības, kā arī pastiprināti tiek uzlabota projektu vadības
pieejas plānošanas/ kontrole funkcija.
Atslēgas vārdi: projektu vadība, uzņēmums/ organizācija, struktūra, komanda, riski.
Резюме
Проектный менеджмент как инструмент развития бизнеса
В рамках статьи проведено исследование и анализ проектного менеджмента как одной из форм
руководства развития компании/ организации. Цель статьи – анализировать проектный менеджмент как
феномен подотрасли менеджмента и реализовать практическую часть с целью исследования подхода
проектного менеджмента в выбранной частной фирме или так называемой Демонстрационной компании
в Латгальском регионе (Латвия). Проект – это процесс, создаваемый комплексом координированных и
конролируемых действий, который имеет определенные сроки начала и завершения и для достижения
цели которого, соответствующей особым требованиям проекта, необходимо вложиться в строгие рамки
отведенного времени, расходов и других ресурсов. Использование метода проектного менеджмента в
организации имеет влияние на практикуемый организацией функциональный менеджмент и
взаимодействует с ним, таким образом достигая положительной синергии, что в случае частной
компании способствует достижению цели предпринимательства – получения прибыли – быстрее и
эффективнее. Цель статьи – найти ответ на вопрос, является ли проектный менеджмент эффективной
организационной формой руководства хозяйственной деятельности. Вопрос исследования: способствует
проектный менеджмент как организационная форма руководства предприятия улучшению
хозяйственных показателей предприятия? Основной вывод: использование подхода проектного
менеджмента может способствовать развитию бизнеса un улучшить экономические и финансовые
показатели деятельности предприятия, при условии, что срочным образом обобщаются и решаются
нужды обучения проектных руководителей и развития потенциала, а так же реализуется укрепление
функции планирования /контроля использования подхода проектного менеджмента.
Ключевые слова: проектный менеджмент, предприятие/ организация, структура, команда, риски.
25
Dr.oec., professor Inna Stecenko
Mg.oeс., PhD student Kristīna Mahareva
AGREEMENT AND FINANCIAL RELATIONSHIPS
BETWEEN PARTICIPANTS IN LATVIAN RURAL TOURISM
SERVICES NDC-EXPORT TO THE GLOBAL AIR-PASSENGER
TRANSPORT MARKET
The Latvian state policy formulating nationally focused projects and guidelines holds the rural tourism segment
one of its main priorities. However, according to the obtained statistics, the last decade witnessed a recession in
the sphere. The latest trends in these indices revealed by the authors give ground for the conclusion that
governmental and municipal marketing measures aimed at the development of the studied tourism sector and the
service export are gradually becoming less efficient. It proves necessary to adopt new approaches encouraging
the infrastructure improvement for rural tourism services better distribution. One of such approaches lies in
aggregation and subsequent export of rural tourism services as ancillary ones to air transportation based on the
widely implemented New Distribution Capability technology in air-passenger transport. To use the outlined
approach, the authors elaborated a national framework grounded on the specialized company “NDC-
Aggregator”. The aim of the current research consists in analyzing three options of this company’s interaction
with other participants in rural tourism services distribution and marketing. Each option is assembled with
individually devised schemes of agreement and financial relationships represented as flowcharts. The authors
conducted a comparative analysis of the suggested options’ efficiency and marketability parameters, as well as
substantiated their application feasibility.
Key words: rural tourism, new distribution capability, regional ancillary services, aggregator.
JEL codes: C 22, M 21, R 48, R 58
Introduction
According to the Latvian state statistics, the infrastructure development and tourism
service export have moved to a higher level. Indicator values, corresponding to the number of
accommodation places (hotels, guesthouses, etc.), their bed capacity, foreign travelers and
tourists staying there for more than a night, demonstrate a noticeable annual growth. One of
the national interests and priorities formulated in “Latvia 2030 – Sustainable Development
Strategy of Latvia” (Latvijas ilgtspējīgas.. 2010), “The National Development Plan 2014–
2020” (NAP 2012), “Latvian Tourism. Marketing Strategy. 2010–2015” (Latvijas tūrisma
mārketinga.. 2010) and “Latvian Tourism Development Guidelines for period 2014–2020”
(Latvijas tūrisma attīstības.. 2014) remains rural tourism. The infrastructure for this tourism
market’s segment is created by service suppliers, that is “enterprises and private persons
which provide accommodation services in small-capacity accommodation establishments
outside Riga” (guesthouses, holiday dwellings, rural houses, camping grounds and other), as it
is defined in the document of Latvian Central statistical bureau (LCSB) “Tourism in Latvia
2017”. However, despite of this segment’s importance, the previous decade showed a certain
regression and sluggishness proven by the trends demonstrated by the bar charts in Fig. 1 and
2. These trends were derived with the help of the Trendline Excel tools using the method of
statistical data processing. The corresponding data were given in Table TUG06 LCSB
http://data.csb.gov.lv/ over the period of 2007–2015 and in Section 2.1 Tourism in Latvia
2017 covering the period of 2008–20161. Fig. 1 represents the trends illustrating the dynamics
of the accommodation places number within the range from ‘Total’ and ‘Other’
accommodation establishments. The trends in question possess high values of the
1 LCSB statistical data for the following years have not been published yet.
26
coefficient of determination (R2) – 0.8308, 0.6736, 0.8611, 0.7284 and 0.4646
correspondingly, which makes it possible to use them for making a short-term forecast, as it is
shown in Fig. 1 for the year of 2017. The bar chart and the trend provided in Fig. 2 show the
number of foreigners accommodated in rural tourism establishments. The trend in Fig. 1,
where R2 = 0.3217, demonstrates a moderate correlation with the chart data, however, does
not show any increase in the target index over the studied period.
Figure 1. The accommodation establishments number in rural tourism
Source: devised by the authors on the base of LCSB 2007–2016.
Figure 2. The non-residents number in rural tourism accommodation establishments
Source: devised by the authors on the base of LCSB 2007–2016.
According to the authors, inefficient distribution of rural tourism services on the Latvian
market is provoked by a poor promotion of such services in social networks and practical
infeasibility of their online reservation, which is premised on a commercial challenge which
service providers have to respond to introduce modern information technologies (IT) in this
sector. Additionally to the information provided above, it should be noted that the general
revenues from foreign overnight travelers taking the travel business as a whole remain
insufficient. Thus, the expected daily yield from one foreign overnight traveler set by
“he National Development Plan 2014–2020” for the year of 2017 was 87.5€ with the annual
one mounting to 577.5€. However, the actual indices were equal to 60.2 EUR and 533.9 EUR
27
correspondingly. The cited examples of the sphere’s unsatisfactory condition and financial
indices of services export in general show that public and municipal authorities’ marketing
potential is reaching its limit. Due to that, elaboration of new approaches to online rural
tourism services distribution proves to be urgent.
The authors (Mahareva 2018 and 2019) have developed a distribution framework of the
kind based on the foundation of a specialized regional company called “New Distribution
Capability (NDC) Aggregator” (hereinafter “Aggregator”) to ensure the NDC-export of rural
tourism services, as air-passenger transport AS, to the global market. The IT Aggregator’s
basis is laid by the NDC standard formulated in Resolution 787 of the International Air
Transport Association (IATA), facilitating business interaction between airline carriers and
AS suppliers via the Internet.
The regional Aggregator enriches the content of an airline’s services with
geographically specific ones which may be provided in one or several small countries, is this
airline company manages flights to each of them. To rationalize the choice of the examined IT
platform, the authors put forward two points: firstly, it is this sphere that is currently
witnessing a wide-scale implementation of NDC technologies ensuring aggregation of
passenger transportation with accompanying non-air ancillary services and their online
commercialization on the global market as single service packages; secondly, air-transport
accounts for more than 50% of all foreigner carriages to Latvia if compared to the total
number of carriages by other transport means.
The paper raises and addresses the following issues:
revealing and grounding potential options for agreement and financial interaction
between the Aggregator and other participants in distribution and commercialization of
rural tourism services, as airlines’ regional ancillary ones (RAS);
conducting an analysis of the regional Aggregator’s competitive advantage.
Theoretical discussion
Nowadays tourism services, as ancillary ones to air transportation, bring in a
considerable revenue to airline carriers. These services’ features, methods of their bundling
with air transportation, as well as corresponding reference sources, were carefully studied by
M. Rebezova in 2017. Y. Hoyles managing the NDC project for IATA presented a detailed
description of the NDC standard, the fields of its application as a toolkit introducing an
innovative technology and providing airlines with direct distribution channels to facilitate
their business running. Ancillary services aggregated with air carriage are widely advertised
on the websites of airlines performing flights to Latvia (Air Baltic, Lufthansa, Aeroflot –
Russian Airlines, Ryanair and others) and on the website of Global Distribution System
(GDS) “Amadeus”, an almost unique DGS on the air-passenger transport service market in
the Baltic states.
According to Y. Hoyles, the Aggregator’s functions in NDC-based systems may be
fulfilled either by independent companies or GDS. However, the Aggregator prioritizes over
services offered by major suppliers (accommodation at three-star (and more) hotels, car
rentals, VIP-service at airports, airport-city transfer, etc.) due to a considerable revenue they
yield. Providers of low-margin tourism services and those in the rural tourism segment in
NDC-based systems are almost excluded as participants. Due to that, it proves crucial to
elaborate patterns and options of agreement and business relationships between the
Aggregator and other participants in air-passenger transport service distribution. The
framework developed by the authors should be centered round the regional Aggregator that
would be in charge of integrating rural tourism services of Latvian suppliers to a national IT
NDC-platform, bundling them with air carriage and offering to customers.
28
Research results and discussion
1. The main terms and options of regional ancillary services distribution
to the global market of air-passenger transport services
The participants in NDC-distribution of air carriages and accompanying ancillary
services in the region in question are:
1. Airlines are suppliers of ancillary services along with air carriages, running computer
reservation systems (CRS) that enable travel agents to get access to the airlines’ service
content. The process of services reservation and marketing takes place directly through
the website in compliance with the NDC standards or through an indirect channel using
GDS.
2. NDC-system generally providing certified travel agents with online access to the content
of airlines’ main services aligned with carriage and ancillary ones. The system redirects
an agent’s query to one or several airline companies operating in the air carriage market
sector specified by the customer and aggregates the received data into one response
message (package deal) facilitating comparison between various offers. The NDC-
system’s functions can be fulfilled with the help of either the airlines’ CRS/ GDS or the
Aggregator’s tools.
3. Aggregator is a provider of the NDC-system’s services exploiting the offered
technologies to pursue its business interests and undertaking commercial activity mostly
in the region. To carry out a profound research it is crucial to consider certain
specifications:
a) the Aggregator is to provide airlines with regional ancillary (non-aviation) services
expanding (“enriching”) their content;
b) an air company may charge the Aggregator with using the toolkit of a GDS for
booking and purchasing tickets on the company’s behalf;
4. Travel agent are the system participants performing service reservation and marketing,
performing settlements and assisting in packaging of providers’ offers by granting the
NDC-standardized or aggregator managed online access to airlines’ carriage information
and ancillary services.
To put forward possible options and outline the upcoming devising of agreement and
financial schemes of the NDC-distribution participants the following notations should be
defined:
Ai airline carrier i (i = 1, 2, … I);
RA regional Aggregator;
Tj regional travel agents (j = …, J), purchasing services from an airline carrier Ai
and regional ancillary services from providers Pl through RA with service
registering in the transportation documentation (TD) provided by the airline Ai;
Tk travel agents (k = 1, 2, ..., K) of the regional Aggregator. They purchase services
from an airline company Ai and ancillary services from providers Pl via GDS
with service registering in the Standard Transportation Document (STD) and the
accredited settlement system’s Bill BSP IATA;
BSP Bill Settlement Plan.
Pl providers of ancillary regional services (l = 1, 2, … L);
GDS Global Distribution System.
Air services provided by an airline carrier can be defined as services associated with air
transportation and ancillary ones (aviation and non-aviation) excluding regional ancillary
services (RAS). Joint distribution, reservation, along with RAS and air services marketing can
generally be accomplished according to four patterns enumerated below:
29
1. Directly by an air company along with registering marketed bundles of services in the
carrier’s transportation documentation (TD).
2. By regional travel agents through the Aggregator with registering the marketed service
packages in the carrier’s TD.
3. By travel agents along with registering the marketed service packages in the Standard
Traffic Document (STD) of BSP or using the corresponding GDS on instructions of the
air company.
4. By travel agents with executing the STD BSP for the bundles of services being marketed
and distributed through the regional Aggregator also acting as a GDS.
2. Variant 1 of regional ancillary services distribution
on the global air-passenger transport market
Schemes of contractual arrangements and settlements between the participants of air
carriage and regional ancillary services marketing through RA in Variant 1 are presented
correspondingly in Fig. 3 and 4.
Figure 3. Scheme of contractual agreements for regional ancillary services marketing
through the Aggregator in Variant 1
Source: devised by the authors.
Figure 4. Scheme of settlement performance between the participants
in regional ancillary services marketing through the Aggregator in Variant 1
Source: designed by the authors.
In this pattern the Aggregator collaborates only with providers of regional ancillary
services and one of the airlines (Ai), “enriching” its service content with accompanying RAS.
Variant 1 implies agreement relationships between the following participants (Fig. 3):
– “Air company Ai – RA”;
– “RA – provider Pl of regional ancillary services”.
Settlements between the participants in aviation services and regional AS marketing in
Variant 1 are performed through the following logistic chains (Fig. 4):
1) “Ai-RA” – settlements from the airline Ai for the Aggregator’s services.
2) “Ai-Pl-RA” – settlements from the airline Ai, performed through the Aggregator, for the
marketed regional ancillary services of the provider Pl.
30
3) “Pl-RA” – settlements from the service provider Pl to the Aggregator for publishing and
distributing the content of regional ancillary services.
3. Variant 2 of regional ancillary services distribution
on the global air-passenger transport market
Schemes of contractual arrangements and settlements between the participants of air
carriage and regional ancillary services marketing through the Aggregator in Variant 2 are
shown in Fig. 5 and 6 correspondingly.
Figure 5. Scheme of contractual arrangements in regional ancillary services marketing
through the Aggregator in Variant 2
Source: designed by the authors.
Figure 6. Scheme of settlement performance between the participants in regional
ancillary services marketing through the Aggregator in Variant 2
Source: devised by the authors.
In this pattern airlines provide travel agents registered in the BSP with their service
content expanded by means of regional ancillary services. Variant 2 implies agreement
relationships between the following participants (Fig. 5):
– “Аir company (Ai) – AR”;
– “RA – travel agent (Tj)”;
– “RA – provider (Pl) of regional ancillary services”.
The settlement scheme between the participants of aviation and regional ancillary
services marketing in Variant 2 is based on the following logistic chains (Fig. 6):
31
1) “Ai-RA” – settlements from the Ai for the Aggregator’s services.
2) “Ai.Tj.Pl.RA – settlements from the airline Ai, accomplished through the Aggregator, for
the regional ancillary services ordered by the Тj from the provider Pl.
3) Tj.Ai.Pl.RA – settlements from the Тj to the Ai, among which there are settlements for
service bundles including the services of the airline company Ai and regional ancillary
services of the provider Pl and those offered through the Aggregator.
4) Tj.RA – settlements from the travel agent Тj to the Aggregator for services aligned with
NDC-reservation of orders and TD execution.
5) Pl.RA – settlements from the provider Pl to the Aggregator for publishing and
distributing the content of regional ancillary services.
4. Variant 3 of regional ancillary services distribution
on the global air-passenger transport market
Schemes of contractual arrangements and settlements between the participants of air
carriage and regional ancillary services marketing through the Regional Aggregator (RA) in
Variant 3 are given in Fig. 7 and 8 correspondingly.
Figure 7. Scheme of contractual arrangements in regional ancillary services marketing
through the Regional Aggregator in Variant 3
Source: worked out by the authors.
8. Scheme of settlement performance between the participants
in regional ancillary services marketing through the Regional Aggregator in Variant 3
Source: devised by the authors.
32
Variant 3 stipulates contractual arrangements between the following participants
(Fig. 7):
– “Airline carrier Ai – RA”;
– “Airline Ai – BSP”;
– “Airline Ai – GDS”;
– “RA – Travel agent Тk”;
– “RA – Provider Pl”.
It should be noted that the contractual arrangements “RA – GDS” outlined in Fig. 7
relate to the technological, rather than financial, cooperation.
The settlement scheme between the participants in marketing of aviation service
bundles and the Aggregator is based on the following logistic chains (Fig. 8):
1) “Ai-RA” – settlements from the airline company Ai for the RA’s services.
2) “Ai-GDS” – settlements from the airline Аi for the GDS services.
3) “Ai-Tk-RA-Pl” – Aggregator-managed settlements from the airline Аi for the regional
ancillary services offered by the provider Pl, reserved and reimbursed via BSP by a travel
agent Тk.
4) “Tk-Ai-Pl-BSP-RA” – settlements from a travel agent Тk to the airline Ai via BSP for the
Ai’s services including payments for regional AS from the provider Pl and the
Аggregator’s services.
5) “Tk-Ai-Pl-GDS” – settlements from a travel agent Tk for the GDS services of booking
and registering the services of the airline Ai, expanded by regional ancillary services of
the provider Pl.
6) “Pl-RNA” – settlements of the provider Pl for RAS allocation and distribution though the
Aggregator.
5. Variant 4 of regional ancillary services distribution
on the global air-passenger transport market
Scheme of contractual arrangements and settlements between the participants of air
carriage and regional ancillary services marketing through the Regional Aggregator (RA) in
Variant 4 is given in Fig. 9. This pattern implies agreement relationships between the
following participants:
– “Air company Ai – RA”;
– “Air company Ai – BSP”;
– “RA – Travel agent Тk”;
– “RA – Provider Pl”.
Figure 9. Scheme of contractual arrangements in air carriage and regional ancillary
services marketing through the Regional Aggregator in Variant 4
Source: designed by the authors.
33
In Variant 4 the Aggregator’s role is performed by GDS (e.g., Amadeus) with additional
functions of RAS aggregation. This pattern does not imply the usage of mutual payment
scheme. It should be pointed out, though, that GDS-run business, due to its global level,
mainly attracts major service providers and does not allow minor ones from small countries to
get involved. Therefore, to approach the formulated issue of RAS export the first three
variants are considered the most feasible.
6. Conceptual comparative analysis of the Aggregator introduction variants
for RAS export
Technically, variants of Aggregator introduction are stipulated by this or that type of
agreement and financial relationships between the participants in RAS distribution. Table 1
presents a conceptual comparative analysis of these options with the most significant features
being underlined.
Table 1
Conceptual comparative analysis of Aggregator introduction
Variant 1 Variant 2 Variant 3
The variant’s advantages
1. The least cost-demanding
variant of Aggregator
introduction and ensuring its
business activity, as Aggregator
is excluded from BSP, does not
cooperate with GDS and is not
obliged to offer them any
guarantees.
2. It becomes possible to manage
external hosting of the “NDC-
Aggregator” system (not at the
Aggregator’s service platform)
without any risks for the
Aggregator of losing its
business in case of its
bootstrapping.
3. The timescales for Aggregator
introduction and attaining its
self-financing are very short.
4. The project gets massive
support on the national, regional
and municipal levels, as well as
from travel and tourism
associations.
1. Moderately demanding option of
Aggregator introduction and
ensuring its business activity.
2. Travel agents cooperating with the
Aggregator can get into the global
market of air-passenger transport
services without being registered
in BSP.
3. It becomes possible to manage
external hosting of the “NDC-
Aggregator” system without any
risks for the Aggregator of losing
its bootstrapping business.
4. The project is supported on the
national, regional and municipal
levels, as well as by travel and
tourism associations, especially in
the sphere of RAS export.
1. The most expensive
option of Aggregator
introduction and ensuring
its business activity.
2. The most efficient option
to guarantee worldwide
access to RAS and travel
agents registered with
BSP.
3. The project is supported
on the national, regional
and municipal levels, as
well as by travel and
tourism associations,
especially in the sphere of
RAS export.
34
Table 1 Continuation
Variant 1 Variant 2 Variant 3
Variant’s disadvantages
1. It requires intensive
organizational work with NDC-
airlines operating flights to the
region to sign commercial
agreements with them to ensure
the supply of accompanying
RAS.
2. It remains impossible to provide
travel agents with access to the
service content of airlines
operating regional flights.
1. It implies numerous arrangements
with NDC-airlines operating
flights to the region, in order to
sign commercial agreements with
them for guaranteeing the supply
of accompanying RAS.
2. When marketing services through
the Aggregator registered in the
provider’s TD, it is necessary to
additionally consider regional
travel agents’ warranty liabilities
to the Aggregator and those of the
Aggregator to NDC-airlines for the
corresponding quantity of traded
bundles of aviation and RAS
services (not shown in Fig. 5 and
6).
1. It becomes necessary to
purchase (to get on lease)
the “NDC-Aggregator”
system and construct a
private platform for its
exploitation. External
hosting involves the risk
of losing the business.
2. The Aggregator must
become part of BSP
offering corresponding
guarantees.
3. There remains a high risk
of competing with the
operating regional GDS
provider.
Source: developed by the authors.
The developed variants and schemes of contractual arrangements between the
participants of RAS distribution on the global air-passenger transport market on the base of
IATA’s NDC project and the conducted conceptual comparative analysis prove Variants 1
and 2 to be the most cost-efficient and sustainable. These options of Aggregator introduction
and ensuring its commercial activity are based on a major airline’s NDC-system, without
engaging GDS (GDS1). The role of this airline may be performed by any air company
operating flights to Latvia.
Variant 3 can be put into practice if a provider of an alternative GDS (GDS2) is
attracted. This project-participant should be eager to develop its business by means of
appearing on a new market and entering into competition with the existing GDS1 provider.
Conclusion
1. Export of travel and tourism RAS lies in the priority of small countries. For this reason,
the project of Aggregator introduction and ensuring its operation will definitely be
supported in corresponding countries on national and regional levels, as well as by
relative associations and other organizations in the sphere of inbound and outbound
tourism.
2. The aggregated RAS can include not only rural tourism services, but also other ones from
Latvian providers not marketing them online (for instance, guesthouses and low-star
hotels in towns), which can contribute to an increase in Latvia’s revenues from exported
tourism and accommodation services.
3. The research results concerning the RAS export variants obtained by the authors can also
be used to promote Latvian travel offers on target markets, to form regional tourism
clusters and to add the Latvian tourist product to the travel offers of the Baltic States as
one of the growth areas enumerated in Latvian Tourism Development Guidelines for
period 2014 – 2020.
35
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inline-files/Latvija_2030_7.pdf (2019.25.01)].
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valsts aģentūra Rīga. [Electronic resource https://www.em.gov.lv/files/turisms/PPD_3.pdf (2019.25.01)].
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Tourism in Latvia 2017. Collection of Statistics. [http://www.csb.gov.lv/sites/default/files/nr_28_turisms_
latvija_2017_17_00__lv_en.pdf (2019.25.01)].
Mahareva. K. (2018) Evaluating Possibilities of Regional Tourism Services in the Air-passenger Transport
Global Market (A Case Study of Latvian Market). [http://www.hrpub.org/download/20180530/UJM2-
12111586.pdf / Universal Journal of Management 6(5)] [http://www.hrpub.org DOI: 10.13189/ujm.2018.060502
pp. 148–154].
Mahareva. K. (2019) Tourism trends and a new distribution method of Latvian domestic and inbound tourism
services. In book: “Reliability and Statistics in Transportation and Communication. RelStat 2018”. Springer
International Publishing, pp. 246–257.
NDC-resolution 787. [Electronic source: https://www.iata.org/whatwedo/airline-distribution/ndc/
Documents/ndc-resolution-787.pdf (2019.25.01)].
Rebezova, M. (2017) Logistics and optimization of ancillary services on air transport. The promotion work
presented to the Transport and Communication Institute to obtain the scientific degree – Dr.sc.ing. Transport and
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prom_council/summary_eng.pdf/ (2019.25.01)].
Hoyles, Y. (2014) IATA-led Simplifying the Business (StB). New distribution capability (NDC). Building
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(2018.25.01)].
Kopsavilkums
Latvijas lauku tūrisma pakalpojumu NDC-eksporta dalībnieku līgumiskās un
finansiālās attiecības ar pasaules pasažieru gaisa transporta tirgu
Lauku tūrisms ir viens no valsts stratēģijas, Latvijas attīstības plānu un vadlīniju prioritātēm. Tomēr saskaņā ar
statistiku pēdējo desmit gadu laikā tās rādītāji ir samazinājušies. Šo autoru identificēto rādītāju tendences pamato
apgalvojumu, ka valsts un pašvaldību mārketinga pasākumu potenciāls attiecīgās tūrisma nozares attīstībai un tās
pakalpojumu eksportam ir izsmelts. Šādi pasākumi ir jāpapildina ar jaunām pieejām reģionālās infrastruktūras
attīstībā lauku tūrisma pakalpojumu piedāvājumā. Viena no šādām pieejām ir lauku tūrisma pakalpojumu
apkopošana un eksports, kas ir gaisa satiksmes papildpakalpojumi, pamatojoties uz plaši pieņemto gaisa
transporta tehnoloģiju New Distribution Capability.
Lai īstenotu šo pieeju, autori izstrādā koncepciju par specializētas kompānijas NDC-Agregātors izveidi valstī.
Pētījuma mērķis ir izstrādāt koncepciju, lai identificētu šī uzņēmuma līgumiskās un finansiālās attiecības ar
citiem lauku tūrisma pakalpojumu izplatīšanas un pārdošanas dalībniekiem. Pētījuma mērķis ir analizēt trīs
kompānijas mijiedarbības iespējas ar citiem izplatītājiem un lauku tūrisma pakalpojumu pārdošanu. Katrai no
iespējām ir izstrādātas atbilstošas finanšu un līgumattiecību organizēšanas shēmas orientētu grafiku veidā. Tiek
veikta salīdzinoša analīze par piedāvāto iespēju efektivitāti un konkurētspēju, un to izmantošanas iespējas ir
pamatotas.
Atslēgas vārdi: lauku tūrisms, izplatīšanas jaunas iespējas, papildpakalpojumi.
36
Резюме
Договорно-финансовые отношения участников NDC-экспорта услуг сельского
туризма Латвии на глобальный рынок пассажирского воздушного транспорта
Cегмент сельского туризма является одним из приоритетов государственной стратегии, планов и
руководств по развитию Латвии. Однако, согласно статистическим данным, за последнее десятилетие
наблюдается регресс его показателей. Выявленные авторами тренды этих показателей обосновывают
предположение, что потенциал государственных и муниципальных маркетинговых мероприятий
развития рассматриваемого сектора туризма и экспорта его услуг исчерпывает себя. Необходимо
дополнять такие мероприятия новыми подходами по развитию инфраструктуры дистрибуции услуг
сельского туризма.
Один из таких подходов – агрегирование и экспорт услуг сельского туризма, как сопутствующих
авиаперевозкам (“ancillary services”) на базе широко внедряемой технологии New Distribution Capability
воздушного транспорта. Для реализации такого подхода авторы разрабатывают концепцию создания в
стране специализированной компании “NDC-Агрегатор”. Цель исследования заключается в развитии
концепции в части выявления договорно-финансвовых отношений этой компании с другими
участниками дистрибуции и продажи услуг сельского туризма. Задачи исследования заключаются в
анализе трех вариантов взаимодействия этой компании с другими участниками дистрибуции, и продажи
услуг сельского туризма. По каждому из вариантов разработаны соответствующие схемы организации
финасово-договорных отношений в виде ориентированных графов. Проведен сравнительный анализ
эффективности и конкурентоспособности предлагаемых вариантов. Обоснованы потенциальные
возможности их применения.
Ключевые слова: сельский туризм, new distribution capability, региональные сопутствующие
авиаперевозки, агрегатор.
37
Mg.oec. Nadezhda Grishkjane
LABOUR MIGRATION AND ITS IMPACT ON MACROECONOMIC
PERFORMANCE IN THE BALTIC COUNTRIES 2004–2016
Labour migration is a bilateral movement of labour force in order to satisfy certain economic benefits (for
example, job opportunities, higher salary, career development opportunities, etc.). The impact of labour
immigration on macroeconomic performance has been studied by many different researchers because labour
immigration increases supply in the labour market, facilitates flexibility of labour market, promotes business
development and thus contributes to the economic growth in the country. The impact of labour migration on
macroeconomic performance depends on labour migrants’ level of education and qualification. Highly skilled
labour migrants are considered more valuable human capital because they promote exchange of knowledge,
development of entrepreneurship, investment inflow and the economic growth in the country. Labour
emigration, on the one hand, reduces competition in the local labour market but, on the other hand (especially
highly qualified labour emigration) – reduces supply in the labour market, increases unemployment rate, causes
the demographic problems, reduces the entrepreneurial potential and thereby economic growth in the country.
Remittances are one of the positive labour emigration effects. It is believed that remittances can contribute to
local inhabitants’ income growth, business development and investment inflow, as well as the economic growth
in the country. This effect depends on remittances investment. Therefore topicality of study has been related to
determining labour migration impact on macroeconomic performance in the three Baltic countries during 2004–
2016. It allows determining the prospects for the development of labour migration and government policy in the
future.
Key words: labour immigration, labour emigration, employment, unemployment, remittances, Baltic countries.
JEL codes: J11, J23, J61, O15
Introduction
Labour migration has been and will be a topical issue in all times and in all the countries
because people always migrate from one place to another to get more benefits. There are
several reasons for labour migration but economic factors are considered as the main reason
for decision making about labour migration. For example, job opportunities, wages
differentials, career development opportunities, etc.
Since joining to the European Union, the wider opportunities in the international
economy have emerged in the three Baltic countries. Members of the European Union also
opened their labour markets to labour migrants from the Baltic countries which also affected
the labor migration processes and, consequently, the economic growth in the three Baltic
countries. According to Latvian and Lithuanian statistical data labour emigrants mainly chose
the United Kingdom and Ireland during the period from 2004 to 2016, and in the recent years
the Scandinavian countries have become a popular destination for Latvian and Lithuanian
labour emigrants (approximately 40% of the total labour emigration amount in 2016).
According to Estonian statistical data, more than a half of all labour emigrants chose Finland
(49.2% of the total labour emigration amount in 2016), which is related to geographical and
national proximity. Differences in living standards, which are determined by differences in
the economic environment and quality of life, are considered as one of the reasons for labour
emigrants leaving the Baltic countries.
Since the restoration of the independence, in all the Baltic countries has been negative
net labour migration, which also affected the labour market and the overall economic growth
in all these countries. Taking into consideration labour migration trends in the Baltic countries
during the period from 2004 to 2016, it is interesting to determine how labour migration has
affected macroeconomic performance in the Baltic countries.
38
Theoretical discussion
Several economists (Dustmann, Frattini, Preston 2007; Somerville, Sumpto, 2009;
Islam, Khon 2015) believe that labour immigration has positive effects on macroeconomic
performance of the country because it increases supply in the labour market, promotes labour
market flexibility, improves demographic situation, promotes the business environment and
investment, as well as the economic growth in the country. The results of the studies refer
mainly to countries with high inflow of labour immigration (Bobtone, Dumont, Dault 2016).
However, on the other hand, labour immigrants pose a tension amongst the local
population because labour immigration increases competition in the labour market and
unemployment rate, occupies job vacancies, etc. (Corter 2006). But several studies have
shown that labour immigration does not affect the labor market and wages in the country
(SteffenPischke, Velling, 1997; Carrasco, Jimeno, Ortega 2007). The labour immigration
impact on the macroeconomic performance also depends on the labour immigrants’ education
and qualification levels (Dustmann, Fobbri, Prestosi 2005). Highly qualified labour
immigrants are considered a valuable human capital because they promote knowledge
exchange, business development, investment and also make a definite contribution to the
economic development in the country (Storestelten, Lee 2000; Islam, Khon 2015).
On the one hand labour emigration decreases competition in the local labour market,
but, on the other hand, (notably the highly qualified labour emigration) – decreases supply in
the labor market, increases unemployment rate, decreases business potential and investment
and also reduces economic growth in the country (Wright 2009). Labour emigrants’
remittances to the country can be a positive factor of labour emigration (Acosts et al., 2007;
Adam, 2006). It is also believed that remittances are the largest part of financing in most of
the developing countries, and these remittances can reach millions or trillions USA dollars
(Karnīte, 2009). It is interesting to determine how remittances affect macroeconomic
performance in the Baltic countries.
The main objective of the article is to determine how labour migration affects
macroeconomic performance in the Baltic countries applying correlation and regression
analysis methods.
Research methodology
Theoretically, labour migration and economic growth analysis could include many
different aspects. In this article labour migration affects on macroeconomic performance in
the Baltic countries are determined. Macroeconomic performance indicators are GDP,
employment rate and unemployment rate. Taking into consideration that remittances are
considered as the most important factor of particular country economic development, author
also determines how remittances impact macroeconomic performance and local people’s
living standards in the Baltic countries.
The most common methods used to analyse labour migration and macroeconomic
performance are economic mathematical modelling, correlation and factor analysis, scenario
forecasting and experts’ opinions. One of these methods, i.e., the method of correlation and
regression analysis, is used in the author’s research. Theoretically, the correlation coefficient
is set to range from -1 to +1. Before making conclusions, first of all, the F-test (p-value) must
be performed. If p-value is less than 0.05 that the alternative hypothesis may be accepted –
there is a linear relationship between two variables. But if p-value is greater than 0.05 then the
alternative hypothesis cannot be accepted – there is no linear relationship between two
variables. However, this does not mean that between two variables there is no relationship. In
turn, the regression analysis method helps to determine the labour migration impact on the
39
macroeconomic performance in the country, increasing by 1%. The regression coefficient has
the same sign as the correlation coefficient.
The research author uses double logarithmic form to determine how labour migration
impacts macroeconomic performance in the Baltic countries. In order to use double
logarithmic form, it is necessary:
a. signs Y values y1, y2, ... yn, calculate the logarithms ln(y1), ln(y2), ... ln(yn);
b. signs X values x1, x2, ... xn, calculate the logarithms ln(x1), ln(x2), ... ln(xn);
c. linear regression analysis tools should be used similarly to linear regression analysis of
single factors and multi factors, instead of factoring and resulting signs taking into
account logarithmic values.
Logarithmic form can be written using the boiling formula:
ln(y) = ln(x1) + ln(x2) + ... + ln(xn) + c, (1.1)
y – dependent value;
x1, x2 – independent value;
c – constant.
This form shows dependent value flexibility versus independent value. The coefficient
at the independent variable X shows, how dependent value Y will change, if independent value
X increases by 1%. For example, how will change macroeconomic performance if labour
migration in the Baltic countries increases by 1%. Double logarithmic form is used when
there is basis for flexibility.
Research results and discussion
The first link that is being studied is the correlation between labour migration and total
population in the Baltic countries (see Table 1). According to the author’s calculations,
growth of labour immigration and emigration does not contribute to improving demographic
situation in the Baltic countries. It can be explained by the small labour immigration inflow
and large number of labour emigration (Latvian, Lithuanian and Estonian statistical
database, 2016). It reduces the total population in the Baltic countries.
Table 1
Linear correlation between labour migration and population in the Baltic countries
Latvia Lithuania Estonia
Labour immigration
Population R= -0.792
P-value=0.011
R= -0.923
P-value=0.000
R= -0.891
P-value=0.050
Labour emigration
Population R= -0.491
P-value=0.080
R= 0
P-value=0.106
R= -0.688
P-value=0.009
Source: made by SPSS Statistics programme calculations.
In Latvia and Estonia there is a strong and negative linear link between labour
emigration and total population. For example, according to Latvian statistical data during the
2004–2010 labour emigration increased by 37% or 16381 people, but the total population
decreased by 6.8% or 256006 people. According to Estonian statistical data, labour
emigration increased by 79.6% or 1929 people, but total population decreased by 2.4% or
32960 people. It means that 2004–2010 every fifteenth labour emigrant decreased total
population in Latvia and in Estonia every seventeenth labour emigrant decreased total
population. Decreasing of total population in Latvia and Estonia is more affected by other
40
factors not only labour migration changes (for instance, high death rate, low birth rate, aging
of people, etc.).
According to the author’s calculations, in Latvia with labour emigration growth by 1%
or 132 people, total population will decrease by 0.097% or 1933 people. In Estonia with
labour emigration increasing by 1% or 353 people, total population will decrease by 0.02% or
134 people. It means that in Latvia every fourteenth labour emigrant contributes to a
decreasing of total population, but in Estonia every labour emigrant contributes to decreasing
of total population. Thus, there is also a possibility that Latvia and Estonia due to the
increasing labour emigration lose well-educated, well-motivated and progressive people.
The second link is the correlation between labour migration and GDP in the Baltic
countries. According to the author’s calculations in the Baltic countries there is a very strong
and positive linear link between labour immigration and GDP. It means that growth of labour
immigration promotes the GDP growth in the Baltic countries. In other words, additional
labour force promotes the GDP growth in the Baltic countries.
Table 2
Linear correlation between labour migration and GDP in the Baltic countries
Latvia Lithuania Estonia
Labour immigration
GDP R= 0.609
P-value=0.012
R= 0.666
P-value=0.000
R= 0.975
P-value=0.000
Labour emigration
GDP R= 0
P-value=0.295
R= 0
P-value=0.440
R= 0
P-value=0.671
Source: made by SPSS Statistics programme calculations.
According to the author’s calculations, in Latvia labour immigration growth by 1% or
61 people promotes the GDP growth by 0.34%. In Lithuania labour immigration growth by
1% or 113 people promotes GDP growth by 0.44%. In Estonia labour immigration growth by
1% or 47 people promotes GDP growth by 0.29%. This small positive benefit from labour
immigration growth to GDP growth can be explained by the small labour immigration trends
in the Baltic countries.
According to the author’s study, in the Baltic countries was not determined a linear link
between labour emigration and GDP (p-value>0.05). It means that GDP growth in the Baltic
countries also is influenced by other factors, not only labour emigrations trends. For instance,
according to Latvian, Lithuanian and Estonian statistics since 2011 to 2016 GDP growth was
fixed in these countries. Despite of small labour immigration trends and mass labour
emigration trends, GDP has grown. It means that GDP growth in these countries also depends
on other factors. But it should be noted that labour immigration is additional labour force
which is necessary for economic growth in the Baltic countries.
In Latvia there is a strong and positive linear link between medium educated labour
immigrants and GDP (see Table 3). It can be explained by the large number of medium
educated labour immigrants in Latvia (61% of total labour immigrants’ number). But in
Estonia there is a strong and positive linear link between GDP and labour immigration
regardless of level of education. In addition higher level of education is the largest benefit to
economic growth in Estonia. It can be explained by the fact that Estonia has been trying, with
indirect way, to involve labour immigrants in the development of new knowledge and skills
(science, education) (Paula 2016).
41
Table 3
Linear correlation between labour migration depending on the level of
education/qualification and GDP in the Baltic countries
GDP
Latvia
Tertiary educated labour immigrants r= 0
p-value=0.941
Medium educated labour immigrants r= 0.503
p-value=0.015
Low educated labour immigrants r= 0
p-value=0.313
Lithuania
Tertiary educated labour immigrants –
Medium educated labour immigrants r= 0
p-value=0.624
Low educated labour immigrants –
Estonia
Tertiary educated labour immigrants r= 0.903
p-value=0.000
Medium educated labour immigrants r= 0.865
p-value=0.004
Low educated labour immigrants r= 0.671
p-value=0.024
Source: made by SPSS Statistics programme calculations.
According to the theory, labour migration can promote improvement or deterioration of
labour market and the next link studied is the correlation between labour migration and
employment/unemployment rate in the Baltic countries (see Table 4).
Table 4
Linear correlation between labour migration and employment/unemployment rate
in the Baltic countries
Latvia Lithuania Estonia
Labour immigration
Employment rate R= 0
P-value=0.461
R= -0.610
P-value=0.019
R= 0.519
P-value=0.028
Labour emigration
Employment rate R= -0.532
P-value=0.050
R= -0.687
P-value=0.011
R= 0
P-value=0.719
Labour immigration
Unemployment rate R= 0
P-value=0.461
R= -0.610
P-value=0.019
R= -0.519
P-value=0.047
Labour emigration
Unemployment rate R= 0.836
P-value=0.000
R= 0.775
P-value=0.010
R= 0
P-value=0.708
Source: made by SPSS Statistics programme calculations.
In Lithuania there is a strong and negative linear link between labour immigration and
employment rate. For example, during the 2004–2016 period average annual labour
immigration increased by 6.5% or 1669 people, but employment rate decreased by 0.48% or
6918 people. In Estonia there is a strong and positive linear link between labour immigration
and employment rate. For example, during the 2004–2016 period average annual labour
immigration was increased by 13% or 1076 people but employment rate grew up by 0.53% or
42
2667 people. It means that in Estonia labour immigration complements labour force demand
but in Lithuania labour immigration creates an additional burden on the labour market.
In Latvia and Lithuania labour emigration has negative impacts on labour market. For
instance, in Latvia growth of labour emigration by 1% or 132 people reduces employment rate
by 0.12% or 1087 people and increases unemployment rate by 0.34% or 780 people; but in
Lithuania growth of labour emigration by 0.12% or 353 people reduces employment rate by
0.12% or 1566 people and increases unemployment rate by 1.02% or 1134 people. It means
that every eighth labour emigrant reduces employment rate and every fifth labour emigrant
increases unemployment rate in Latvia. But in Lithuania every fourth labour emigrant reduces
employment rate and every labour emigrant increases unemployment rate in Lithuania. It can
be explained by the fact that in Lithuania there are more labour emigrants than in Latvia
(Latvian and Lithuanian statistical database, 2016).
The studied literature shows that several researchers point out that labour emigrants’
remittances are regarded as potentially positive aspects of labour emigration. Therefore, the
author of the article also wants to determine how labour emigrants’ remittances affect the
macroeconomic performance in the Baltic countries, as well as the quality of life of the local
population. Therefore the next link that was studied is the correlation between labour
emigrants’ remittances and GDP, poverty rate and household incomes (see Table 5).
Table 5
Linear correlation between labour emigrants’ remittances and GDP/household
incomes/poverty rate in the Baltic countries
Latvia Lithuania Estonia
GDP R= 0.856
P-value=0.000
R= 0
P-value=0.620
R= 0.914
P-value=0.000
Poverty rate R= 0
P-value=0.128
R= -0.727
P-value=0.007
R= 0
P-value=0.158
Household incomes R= 0.546
p-value=0.050
R= 0.631
p-value=0.028
R= 0.804
p-value=0.001
Source: made by SPSS Statistics programme calculations.
In Latvia and Estonia there is a very strong and positive linear link between labour
emigrants’ remittances and GDP. It means that these funds can be used as an investment for
business development, which is necessary for economic growth in the Baltic countries. But in
Lithuania there is a very strong linear link between labour emigrants’ remittances and
household incomes and poverty rate. It means that these funds more affected local
inhabitants’ life standard in Lithuania.
Conclusions
1. In three Baltic countries was determined a strong and negative linear link between the
total population and labour immigration/emigration – with labour immigration/emigration
growth by 1%, the total population decreases in these countries. It means that labour
immigration and emigration trends do not promote improvement of demographical
situation in three Baltic countries. Thereby, due to the negative balance of labour
migration, three Baltic countries lose well-educated, progressive and well-motivated
people. This can be attributed to both small labour immigration and mass labour
emigration trends, as well as decreasing of the total population is also affected by other
factors (for example, the aging of people, etc.).
43
2. In Latvia and Lithuania there is a strong and positive linear link between labour
immigration and GDP, but in Estonia – a very strong and positive linear link between
labour immigration and GDP. These results confirmed the author’s hypothesis that labour
immigration positively affects economic growth in the Baltic countries. The positive and
strong linear link between labour immigration and GDP can be explained by labour
immigrants’ desire to engage in the process of economic growth. For example, according
to the Latvian, Lithuanian and Estonian statistical data, Estonian labour immigrants and
local inhabitants’ activity rate and employment rate is higher than in Latvia and
Lithuania.
3. In three Baltic countries was not determined the linear link between labour emigration
and GDP. It can be explained by the labour emigrants’ reluctance and inability to engage
in development of their country’s economy, as well as by mass labour emigration in the
Baltic countries. Labour emigration does not affect economic growth in the Baltic State.
In the Baltic State GDP growth more depends on other factors. For example, during the
2011–2016 period in three Baltic countries was fixed GDP growth (Latvian, Lithuanian
and Estonian statistical database about GDP growth, 2011–2016) despite of large
number of labour emigrants in these countries.
4. In three Baltic countries labour immigration which provides the necessary human capital,
has a positive impact on the overall productivity indicator (GDP) and hence on economic
growth in these countries. In Latvia the greatest benefit for its economy is from medium
educated labour immigrants, but in Estonia – also from tertiary educated labour
immigrants. The positive and strong linear link between tertiary/medium educated labour
immigration and GDP in Estonia can be explained by indirect way to involve labour
immigrants in development of new knowledge and skills (education, science) and thus,
creating the economic growth in the country. In Estonia is also a larger number of tertiary
educated labour immigrants (42.5% of the total labour immigrants amount had tertiary
education in 2016), than in Latvia and Lithuania (respectively 32.5% and 34.8% of the
total labour immigrants amount had a tertiary education in 2016). In Latvia is the largest
number of medium educated labour immigrants (61% of the total labour immigrants in
2016).
5. In Lithuania there is a strong and negative linear link between labour immigration and
employment rate, but in Estonia – a strong and positive linear link between labour
immigration and employment rate. It means that in Lithuania labour immigrants pose an
additional burden on the labour market but in Estonia labour immigrants complement
labour force demand in the labour market. In Latvia was not determined a linear link
between labour immigration and employment rate. It can be explained by labour
immigrants’ desire engage to Estonian labour market and labour immigrants’
unwillingness or inability to engage in Latvian and Lithuanian labour markets.
6. In Latvia and Lithuania there is a strong and negative linear link between labour
emigration and employment rate, as well as a strong and positive linear link between
labour emigration and unemployment rate. It means that growth of labour emigration
promotes the decreasing of employment rate and increasing of unemployment rate in
Latvia and Lithuania. For example, in Latvia and Lithuania growth of labour emigration
by 1% (in Latvia by 135 labour emigrants and in Lithuania by 353 labour emigrants)
promotes decreasing of employment rate by 0.12% (in Latvia by 1087 people and in
Lithuania by 1566 people) and increasing of unemployment rate in Latvia by 0.34% or
780 people and in Lithuania by 1.02% or 1134 people. In other words, in Latvia every
sixth labour emigrant promotes increasing of unemployment rate, but in Lithuania every
third labour emigrant promotes increasing of unemployment rate. The biggest impact
from labour emigration to employment and unemployment rates in Lithuania can be
44
explained by the fact that Lithuania is a larger country by territory and total population
than Latvia. As well as in Lithuania is a larger number of labour emigrants than in Latvia.
7. In Latvia and Lithuania a strong linear link between labour emigration and
unemployment rate can be explained by labour emigrants’ unwillingness or inability
engage to Latvian and Lithuanian labour markets, thereby increasing labour emigrants’
motivation emigrate to other countries. It can be explained by unfavourable employment
conditions in Latvia and Lithuania. This process is in line with “Push- and Pull- theory”.
According to theory of human capital, labour emigrants’ decision making about
emigration depends not only on economical factors, but also on psychological and
sociological factors. For analyzing these factors, it is necessary to conduct the additional
study about labour emigration and its affecting factors.
8. Labour emigrants’ remittances positively affect GDP changes in Latvia and Estonia. It
means that Latvian and Estonian labour emigrants are trying to participate in economic
process of their countries through remittances, which can make a positive effect on GDP
growth in Latvia and Estonia. But, on the other hand, labour emigrants’ remittances
cannot be the only source of stable growth in developing countries. Stimulation of labour
emigrants’ remittances growth is one of the government development strategies and it is
necessary to use these funds in most productive sectors of Latvian and Estonian economy
(education, science, business, innovation, investments in human and physical capitals).
9. In Lithuania there is a strong linear link between labour emigrants’ remittances and local
household incomes/poverty rate. It means that Lithuanian labour emigrants are trying to
participate in their country’s social process and promote Lithuanian local inhabitants’
incomes growth and poverty decline. It promotes Lithuanian local inhabitants’ growth of
prosperity and consumption, as well as growth of savings for contingency provisions.
Overall the author can make the followings proposals:
Taking into account the author’s calculations, in Latvia, Lithuania and Estonia it is
necessary to focus on attracting additional labour force, using opportunities of labour
immigration. It is also necessary to increase labour immigrants’ motivation to participate in
the process of Latvian, Lithuanian and Estonian economic growth. For example, facilitated
entry for tertiary educated labour immigrants, re-qualification for existing medium and low
educated labour immigrants, promotion of the foreign diasporas politics with investment
inflow, creation of business network.
Taking into account that in Latvia and Lithuania there is a strong and negative linear
link between labour emigration and unemployment rate, it is necessary to decrease labour
emigration and increase labour immigration. For example, to create a joint venture in the
Baltic countries, attracting foreign investment (or with foreign diasporas politics
development).
45
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bitstream/handle/7/31166/Hazans_OECD_2013.pdf?sequence=1;
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In: https://www.makroekonomika.lv/imigrejoss-darbaspeks-ko-tas-varetu-nozimet-latvijas-dzives-limenim
Kopsavilkums
Darbaspēka migrācija un tās ietekme uz makroekonomiskājiem rādītājiem
Baltijas valstīs 2004.–2016. gados
Darbaspēka migrācija ir divpusēja cilvēku pārvietošanās no vienas vietas uz citu vietu, lai sasniegtu labāku
ekonomisko ieguvumu (darba meklējumi, lielāka darba alga, karjeras iespējas utt.). Darbaspēka imigrācijas
ietekmi uz makroekonomiskajiem rādītājiem pētīja daudzi zinātnieki, jo tā palielina piedāvājumu darba tirgū,
veicina darba tirgus elastību, uzlabo demogrāfisko situāciju valstī, veicina uzņēmējdarbības vides attīstību un
līdz ar to – arī konkrētas valsts ekonomisko attīstību. Darbaspēka imigrācijas ietekme uz makroekonomiskajiem
rādītājiem ir atkarīga no darbaspēka imigrantu izglītības un kvalifikācijas līmeņa. Augti kvalificētus darbaspēka
imigrantus uzskata par vērtīgu cilvēkkapitālu, jo viņi veicina zināšanas apmaiņu, uzņēmējdarbību, investīciju
pieplūdi, kā arī dod noteiktu ieguldījumu valsts ekonomikā. Darbaspēka emigrācija, no vienas puses, samazina
konkurenci vietējā darba tirgū, bet, no otras puses (it īpaši augsti kvalificēta darbaspēka emigrācija) – samazina
piedāvājumu darba tirgū, palielina bezdarba līmeni, veicina demogrāfiskās problēmas, pasliktina
uzņēmējdarbības vidi un samazina investīciju pieplūdi, kā arī tā tiek uzskatīta par valsts ekonomikas izaugsmi
kāvējošu faktoru. Par vienu no darbaspēka emigrācijas pozitīvajiem faktoriem tiek uzskatīti darbaspēka
emigrantu naudas līdzekļu pārvedumi. Tiek uzskatīts, ka darbaspēka emigrācijas naudas līdzekļu pārvedumi var
veicināt vietējo iedzīvotāju ienākuma līmeņa pieaugumu, uzņēmējdarbības un investīciju attīstību, kā arī var
veicināt konkrētas valsts ekonomisko attīstību. Turklāt šī ietekme ir arī atkarīga no tā, kur šie līdzekļi tiek
ieguldīti. Tāpēc veiktā pētījuma aktualitāte ir saistīta ar darbaspēka migrācijas tendenču izpēti un tās ietekmi uz
makroekonomiskājiem rādītājiem trīs Baltijas valstīs laika periodā no 2004. gada līdz 2016. gadam. Tas viss ļaus
noteikt darbaspēka migrācijas attīstības perspektīvas un valdības politiku tuvākajā nākotnē trīs Baltijas valstīs.
Atslēgas vārdi: darbaspēka imigrācija, darbaspēka emigrācija, nodarbinātība, bezdarbs, darbaspēka emigrantu
naudas līdzekļu pārvedumi, Baltijas valstis.
46
Резюме
Миграция рабочей силы и ее влияние на макроэкономические показатели
в странах Балтии в 2004–2016 годах
Миграция рабочей силы – это перемещение людей с одного места в другое, чтобы получить
экономическое преимущество (работа, большая заработная плата, возможности карьеры и т.д.). Влияние
миграции рабочей силы на макроэкономические показатели изучали многие исследователи, потому что
миграция увеличивает предложение на рынке труда, способствует гибкости рынка труда, улучшает
демографическую ситуацию в стране, способствует развитию предпринимательской среды и, вместе с
тем, экономическое развитие конкретного государства. Влияние миграции рабочей силы на
макроэкономические показатели зависит от уровня образования и квалификации рабочей силы. Растущая
квалификация иммигрирующей рабочей силы считается ценным человеческим капиталом, поскольку
способствует обмену знаний, росту предпринимательской деятельности, инвестиций, а также дает
определенный вклад в экономику государства. Эмиграция рабочей силы, с одной стороны, снижает
конкуренцию на местном рынке труда, а с другой стороны – уменьшает предложение (особенно
высококвалифицированных специалистов) на рынке труда, способствует демографическим проблемам,
ухудшает предпринимательскую среду и уменьшает приток инвестиций, а также считается одним из
тормозящих факторов экономического роста страны. Одним из позитивных факторов эмиграции рабочей
силы считается переводы денежных средств. Предпологается, что переводы средств могут
способствовать росту уровня дохода местных жителей, развитию предпринимательской деятельности и
содействию инвестициям, а также способствовать экономическому развитию конкретного государства.
При этом это воздействие также зависит от того, куда эти средства направлены. Поэтому актуальность
проведенного исследования связана с тем, чтобы определить тенденции миграции рабочей силы и ее
влияние на макроэкономические показатели в трех странах Балтии в период с 2004 по 2016 годы. Все это
позволит исследовать перспективы развития миграции рабочей силы и политику правительства в
ближайшем будущем в трех странах Балтии.
Ключевые слова: иммиграция рабочей силы, эмиграция рабочей силы, занятость, безработица,
переводы денежных средств эмигрантов рабочей силы, страны Балтии.
47
Dr.oec., Professor Givi Bedianashvili
REGIONAL SOCIAL-ECONOMIC SYSTEMS AND
TERRITORIAL STRUCTURE OF THE COUNTRY IN THE CONTEXT
OF MODERNIZATION OF LOCAL SELF-GOVERNMENT
AND ENTREPRENEURIAL ACTIVITY
The article systematically examines the issues of reforming local state administration, especially the
transformation of administrative and territorial objects on the example of Georgia. It emphasizes the necessity of
taking into account the economic, political, social, ethnic, cultural and environmental features that exist in the
country. It is emphasized that for any planned changes in the territorial structure, the initial basis should be the
satisfaction of the primary fundamental human needs and the general system requirements of the state. Together
with this, the special importance is attached to the new realities and challenges of the modern stage of
globalization, which defines general paradigm requirements for economic science itself, for regional research in
particular. The article emphasizes that the object of regional research should be considered the socio-economic
system of the regional level which allows you to comprehensively reflect the full range of factors of life and
social development in the framework of local territorial systems as well as entrepreneurial activities. The socio-
economic approach to the object of study allows the culture to be considered as an important factor in the socio-
economic development of the region and in increasing the level of business effectiveness. Studies show the
directions of possible major changes in the cultural factor on the example and taking into account the
peculiarities of Georgia.
Key words: regional research paradigm, regional socio-economic systems, culture factor of entrepreneurship.
JEL codes: B41, M 21, R10
Introduction
As it is known, one of the main components of the reform needed for the construction of
self-government structures in different countries means the optimization of administrative-
territorial arrangement (read more about it in some historical views (Abuladze 2013; Tree …
2013; Moroz 2012) because of the great importance of this issue, in our view, it is desirable to
analyze, first of all, its scientific (some methodological and methodical) and practical aspects.
We consider it logical, at first, to discuss the essence of “optimization of administrative-
territorial arrangement” in the context of optimization itself. Optimization is a well-known
term of economic-mathematical science (without mathematical strictness) and by its classical
representation it means under the conditions of resource constraints to achieve the best results
in the maximum usage of the resources of the relevant option (options) on the selection of the
(separated) results of cost-minimization. Thus, in our case we think that it is probably meant
to implement such kind of a territorial model that ensures the best results of administrative-
territorial arrangement and regional management (maximal realization of relevant goals).
Optimization in this traditional sense, in our view, is unrealistic in any modern decentralized
form of self-government.
There is also the Pareto optimum concept, which in the multi-regional system means a
set of economic development options that cannot be improved for any regions so as not to
worsen the condition of other regions. Besides, different Pareto optimal options are unusually
favorable for individual regions. There is a potential possibility that certain regions may reach
independently or the coalition with other regions may reach more favorable conditions for
themselves. In fact, in this context, the issue of economic balance is the most important thing,
which, in essence, is hard to achieve. More significantly, in particular, the impact of
globalization and innovative processes in the area of any region in the dynamics of the region
does not have a tendency to intervene in intermediate relations but in the economy and in any
other area of public life and in the continuous violation of this balance state. Thus, this
48
conception of optimism, as we think, cannot match the modern management of the regional
management.
Let’s get back to the essential side of the concept “optimization of administrative-
territorial arrangement”. As we mentioned above, in general, optimization in its essence
means, first of all, in the conditions of these (or expected) resources, to maximize the
achievement of the level of system goals (in our case better satisfaction of the needs of
individual people, improvement of democracy, better involvement of the population in
decision-making process and at the same time the strategic goals of the country development).
Even in such an abstract form, by this opinion the optimization of the territorial arrangement
of Georgia seems to be unrealistic, according to the specificity of modern condition of our
country and it is not advisable to represent the issue in one-side and in narrow framework.
Thus, we can make a conclusion that in the context of local self-government and
“optimization of administrative-territorial arrangement”, in relation to it, cannot be correct in
terms of the “optimization” concept. If there are no mathematical models to determine the
change in the country’s administrative-territorial division, or in other words there is the
realization of the principle of “Common sense” terminologically it will be closer to the
content if we use the statement: “perfection”, “transformation” or “reform of administrative-
territorial arrangement”.
As for the substantive side of the issue – any of the supposed changes in the
administrative-territorial arrangement of the country – here are some of the methodologically
important moments. First of all, during making a conceptual decision on territorial
arrangement, naturally, it is necessary to take into account the socio-economic and ethno-
demographic situation and the peculiarities, problems of the different spheres in the country.
Without this, we think that to use a simple mechanical copy of the model of regional
arrangements of Europe and even the advanced democratic countries is unjustifiable and even
dangerous. It is certainly necessary to focus on the general principles of regional governance
in Europe and take into account all their demands. The European Charter on local self-
governance is meant (The European … 2004). Herewith, it is necessary to find out its
particular effective forms for conditions of Georgia.
The aim of the research is to identify the peculiarity of the region as the object of
cognition and management in the modern conditions, its systemic concept and the main
determinants of territorial transformations. The methods of research are system functional
approach and method of analogy.
Theoretical discussion
Without taking into consideration the current situation in the world and the situation in
Georgia itself, we can get the country’s territorial structure radically more difficult to govern
than it is now. Experience of the development of post-Communist period shows that even
only in the economic sphere, in the process of transition to the market economy, copying
theoretical models and mechanical constructions, specifically for our country it (as for most of
the post-communist countries, see, e.g., Papava 2015) does not work. In order to democratize
the country’s regional governments, it is not likely to carry out such kind of transformations
which will cause complications of the general social and economic environment, the
contradictory (or hard-controlled) distance from the general state demands of political and
ethnic processes, stimulating strain of the potential conflict situations. The depth nature of the
world's well-known economic and social crises of individual countries should be taken into
consideration. Consequently, traditional forms of decentralization and self-governance of the
country may even be unacceptable for our country. While the government has a common
strategic, conceptual system of vision for the social-economic development of the country and
the territorial arrangement, it is obvious that there should be no basis for the simple
49
mechanical decentralization of power and resources in the level of the regions by increasing
their number and reconstructing their functions.
The main thing that should be also taken into consideration is that during implementing
the transformation of the administrative-territorial arrangement (or in other words so called
optimization), there is the risk of strengthening the dangerous disintegrating processes in the
country and integration of the internal regions of the country to the territorial integrity will be
extremely complicated. In any multinational country, unfortunately, the expectations are quite
realistic considering the ongoing events in the world we should assume that the processes are
hard to rule.
It is worth taking into consideration that in today’s conditions, there are also risks to
create additional tension areas in the society (in different regions). These negative processes,
may also give an additional stimulation to the post-communist countries of the region,
according to the high level of social differentiation, the country’s political spectrum and
diversity politicize of public spheres (economic, social and cultural spheres), which is
unfortunately, on the unreasonably high levels.
As for the regionalization (increasing the role of regions in social-economic life of
society) as a development factor of Georgia (as for many other countries), it is obvious that it
should be used for the benefit of every person and for the interests of the country as a whole.
In addition, we should, mention that this factor in current conditions is very sensitive to the
stability of the society. This implies the necessary depoliticization of the supposed advisable
changes in the territorial arrangement of the country and the mechanical copying of self-
governing models of other countries, and most importantly, the maximum orientation of the
country’s social, demographic, ethnic, economic and ecological peculiarities.
Due to the considerable importance of the problems discussed, for the modern stage of
our country’s development, we consider to discuss some following, principle methodological
and methodical issues.
One of the main moments is the specification of the region’s theory because it is basic
in the process of self-governance reforms (the region as the object in modern social-economic
problems is systematically researched e.g. in the work (Bedianashvili 1990).
A state is a specific regional organization of people’s life together. This proposes to
conduct a system analysis of the state in the context of studying the region itself as a complex
organism.
In my opinion, just on the basis of region present conceptions it is possible to form a
system of the conception model of the state (Бедианашвили 1993).
The world experience of both of theory and practice in regional studies confirms non-
single-valid nature and essential distinctions of different kinds of notions for the region. From
the point of view of the presentation of a region, in these studies one can clearly mark out two
directions – economic and socio-economic, which regard the regions as economic and socio-
economic systems (ES and SES) (Бедианашвили 1989; Bedianashvili 1990; Nir 1990).
Presenting the region as a part of the whole, the supporters of the economic conception
of this category on the upper level and as the whole mean a state (its national-economic
complex). Thus, to the notion of a region in some sense, they attach the absolute character.
Though it is obvious that as a general system, the part of which is a regional formation, one
can see the territorial system of larger scales more than any individual state (e.g., a group of
interconnected states, world association on the whole). It results in the relativity of marking
out and analysis of regional object of an individual country (state) and a group of states,
forming a certain territorial system, and it may also be considered as regions of about more
general systems, the part of which they are. At the same time, possible system-formative
features and interrelations between states, being the basis of appropriate territorial system
formation, are various.
50
In present situation the socio-economic conception of the region is actual and that
means to embrace by the notion of the region territorial systems, which reflects the
interrelation and integration of economic, political, ethnic, economic, spiritual, psychological
and other most important aspects of a society.
On the whole, the regional ES may by defined as a combination of interconnected and
interacting human (HMe) and material (MTe) elements of the society and the nature, drawn
into production and economic processes and conformable economic relations (ER), localized
on the territory of the region:
ES= {HMe; MTe; ER},
and the regional SES – as a combination of interconnected and interacting human (HM)
material (MT), spiritual and ideological (ID) and psychological (PS) elements of the society
and the nature, localized on the territory of a region, and relations between them (SR):
SES= {HM; MT; ID; PS; SR}.
The main body of regional SES is an economic component (economic subsystem)
which, at the same time, is a subject of active influence from other spheres of the vital
activity. High intensity of these interrelations is typical for all the levels of territorial
formation of the society. At the same time it seems to be important to mark out the primary
level of regional SES, the further division of which cannot be done without breaking of the
integrity features of the territory as a SES.
Research results and discussion
Here, it is necessary to mention the territorial localization level of SES structures
(resource and technological, social relations and organization and administration), taking into
consideration, in the first place, the closeness of their relations and availability (or possibility
to provide) of some integrity of reproduction processes of these structures within the bounds
of localized territory. At the same time we can start to analyze regionalization (territorial
localization) relatively to the main body of SES – economy, productive forces and relations of
production, i.e. it is supposed that a region at first must appear as a regional ES and then as a
SES (on the other hand, we must remember that not every economic region may by regarded
the same as a socio-economic one).
From these positions, it is possible to mark out the following types of regional SES;
local non-autonomous formations (towns and rural administrative regions), autonomous
formations in a state, sovereign monostate and polystate formations.
For the polystate and monostate regional SES, more general systems, in relation of
which they are regarded as regional formations, are: a world association and world economy –
a global territorial SES.
Hence from the double character of integral socio-economic formation, regional SES as
an ontological object of studies must be considered in two various aspects – as a subsystem of
SES of a higher level and as relatively independent SES.
Conception of regional SES marks out, in its own way, the certain paradigm of spatial
(territorial) life of a society, which proceeds from double nature of any kind of socio-
economic regions (as well as a state). Different regional SES in their matter represents
different forms of human life organization within the bounds of the whole territory as an
organism of SES.
Besides the spatial aspect, the socio-economic conception of a region stipulates the
specification of paradigm temporal aspects of society functioning and development by really
existing territorial forms. At the same time, there are revealing such features of integral
regional socio-economic formations, as dynamicity, purposefulness, activity in conduct. The
51
region as a developed and self-government SES can also be presented by a temporal factor as
a comparatively independent system (comparatively possible autonomous maintenance of
appropriate dynamics of region) and subsystem within the bounds of a more general system
(interrelation and interaction of past, present and future conditions in regional SES).
For the state the first notion means that it is an objective part of world association as of
global SES, and it also can be (of its own free will, for historic reasons or under compulsion)
a certain subsystem of some polystate SES. And the second notion is shown in its state
sovereignty.
Theoretical-methodological analysis shows that all types of territorial formations cannot
be a regional social-economic system and, therefore, a self-governing unit. In territorial
decentralization, it is important to note that the priorities of our country are at the same time
as the demands of the human being and the strategic interests of the country. Thus, the reform
of self-government and the possible transformation of administrative-territorial arrangement
(as the version) should be represented by this view.
As Georgia’s consultant expert specialists of the Council of Europe validly mention, it
is necessary to explicitly confirm the correct correlation between the goals and the proposed
(supposed) reforms. We fully agree with their opinion that creating a new level of self-
government or self-governance in the regions (with competence and relevant financing) is not
a guarantee that people will be provided with better or more effective services (Vision …
2013). It should be taken into consideration that one of the major expectations of the citizens
and the main mission of local self-governments is to ensure adequate delivery of high grade
public services to every person. This is one of the basic principles of decentralization, which
is recognized by the well-known European Charter about Local Self-Government (The
European … 2004).
From the abovementioned, it is natural, first of all, to discuss the structure of human
needs in which the following are allocated: a) material needs and b) social and spiritual needs.
During the further detailing of these requirements, we’ll use a functional approach (see
(Bedianashvili 1990), as a result, the primary (functional) demands of a person in a wide way
will get the following:
A) Material needs
1. Nutrition.
2. Living conditions.
3. Clothes.
4. Health care.
5. Healthy and comfortable and non-commercial environment.
6. The natural and biological environment of a person.
B) Social and spiritual needs
1. Labor.
2. Information:
education;
current information;
the values of culture and sciences.
3. Free time and relaxation.
4. Relationships.
5. Moral and other social needs:
physical security and protection of personal rights;
the stability and warranty of the material and social conditions of each person;
social-ethnic demands;
religious needs;
social equality;
52
national equality and national relations;
public recognition of the person;
participation in the country and public affairs;
the values of culture and sciences.
On the basis of the abovementioned fundamental demands of a person, “targeted”
divisionof objects on the territory can be carried out, while increasing the efficiency of
services and modern technology (Internet, mobile video connection, fast traffic and so on.),
territorial localization of the service facilities of the regional units and the self-governing
regional entities, in the further determination of their skills and resources (Figure 1).
Figure 1. The common logic of the territorial localization process of
objects of initial needs of human beings
Naturally, it is best to carry out this procedure on the basis of the traditional local
regions, primarily taking into consideration the construction of new service facilities (or
extension of existing ones and their territorial accommodation) within their territories. Even
the smallest change in territorial arrangement, in our view, should be caused by the ultimate
necessity and the reasoned action in all its aspects.
In addition, as noted above, it is important to note that any possible changes in the
administrative and territorial division should not increase the potential of the conflict situation
(economic, ethnic, political, ecological, etc).
The transformation of the territorial structure by the government and the logic discussed
above (including the establishment of new municipal borders) is a complex procedure that
requires special preliminary research and agreement with different forces. Estimated possible
transformations in territorial structure and local self-governance should usually be related to
improved access to human needs and based on democracy principles, in improvement of
citizens’ management process (due to the general interests of the country). Therefore, it is
necessary to achieve the compromise between the political parties and other forces of the
society on the relevant issues, which should not be difficult. Our opinion coincides with the
opinion of the Council of Europe experts that the use of enlarge municipalities as the means
of quick political goals should be excluded (Vision … 2013). Otherwise, there is a high
probability that we will get not working or low effective territorial structure (with increased
risks of disintegration of the country, as well as unwanted conflict potentials in different
spheres of the community).
53
It should also be taken into consideration that the Government's vision of self-
governance reform implies certain constitutional amendments to represent the country as an
unincorporated state instead of a unitary state. Such constitutional change is a substantial
institutional transformation of the social-economic system of the country. Therefore, in
addition to the specialists in discussing the principle issues of local self-government reform, it
is necessary to involve a larger part of the experts and the society. Even the Council of Europe
experts have a strong demand that the public should be active in the process of forming and
reviewing the final version of the reform of local self-government and the proposed
administrative-territorial arrangement. It should be noted that the Council of Europe does not
make recommendations about the creation of local self-governance regions and the number of
territorial levels (although at the same time it does not contradict any of the proposed
options). It is known that the solution of these issues is the prerogative and responsibility of
each member state.
Local self-government reform and the transformation of the territorial structure of the
country is not an ordinary project, which should be developed at accelerated pace in the
offices and by any of the methods introduced into real practice.
The complex of proper works, naturally, requires some time. According to the experts
of the Council of Europe, in countries where such reforms were successfully carried out, it
took two to five years to implement these works (Vision … 2013). We agree with this
opinion. It is important to realize that in many cases the subjective acceleration of complex
and multi-tasking works should not be done, because it may cause violation of the systematic
nature of general concept of local self-government reform and leading by undesirable and
wrong direction.
Conclusion
Under the comparative independence of self-governing subjects, integration processes,
the integrity of the country’s social-economic system can be strengthened and developed
through the use of a well-known state regulation methodology in world practice. First of
all, we mean political-legal, normative-legal, informative, institutional, infrastructural,
investment, anti-corruption, fiscal and budgetary methods.
It is obvious that in the process of self-governance reform in the country, it is especially
important to provide qualified personnel. It is impossible to cover the deficit of qualified
personnel in the field of regional management shortly. It should be taken into
consideration that short-term courses and trainings cannot be worked out for adaptation
of other field specialists at regional peculiarities.
It is necessary to organize the fundamental preparation of regional management
specialists in leading universities of the country, using strategic thinking skills, using
complex (economic, social, ecological) knowledge of regions, and taking the experience
of regional research by using modern systemic and economical-mathematical,
econometric methods.
In connection with the above, special paradigms of modern science acquire new
paradigms of economic science (see, e.g., Папава 2018; Hadad 2017). The expansion of
the research object from economic to socioeconomic system is especially important (see,
e.g., Бедианашвили 1993). Surveys based on a complex presentation of the region may
indicate interesting findings, such as Papava 2010, 2015; Bedianashvili 2017a, 2017b,
2018; Šipilova et al. 2017.
In the conclusion we should note that the reform of local self-government and
transformation of territorial-administrative arrangement is a very important event. Thus, in the
social-economic development of Georgia, the realization of the well-being of every citizen,
54
democratization requirements, the decentralization and progressive transformation of all
spheres of public life are the essential natural demands of ensuring necessary public
awareness of the problems and their in-depth and systematic examination. It is also obvious
that the artificial force of these processes and any political interest should be excluded.
Figure 2. Comparative layout of cultural values
Source: http://geert-hofstede.com; Georgia’s parameters are evaluated by expert method.
In fact, from the complex socio-economic nature of the local regions, the
implementation of the complex development programs for the territorial structure
(Regional ..., 2018), which we believe, reflects the positive experience of the EU countries in
this respect (see also Social-economic … 2014). In addition, we consider the general
theoretical and methodological positions to be more intensively focused on satisfying human
functional needs within the regions and promoting the effectiveness of entrepreneurial
activities (we think this is relevant for any country). It is of a great importance to the cultural
factor and to develop cultural values such as strengthening long-term orientation (strategic
and investment thinking) in the activity, reduction of power distance (higher-bourgeois
governance structures) and further development of individualism (individualistic qualities).
Such changes may be the subject to Latvia and Lithuania (see Figure 2), which, of course,
may be identified as a result of special additional research. Although the graph shows that the
value of the parameter of individualism in the Baltic countries is higher than in Georgia, and
the cultural parameters of the distance of power and long term orientation in the Baltic
countries is closer to the level of Switzerland (conventionally benchmark-country) than to
Georgia.
As a result of realization of socio-economic approach, it is possible to allocate important
factors for development of the region, such as institutional structure, culture (as informal
institution) and innovative entrepreneurial integrity. While discussing culture as a factor,
special attention should be paid to perfection of business culture. Examples are confirmed
(see: Hofstede 2004; Didero et al 2008; Beugelsdijk 2007; Geertz 1973; Inglehart and Welzel
2005; Bedianashvili 2018, Didero et al 2008; Differences in Innovation Culture Across
Europe 2008) that has a cultural factor. It is crucial for the development of innovative
entrepreneurial activities and the formation of knowledge economy, including regional socio-
economic systems. Perfectioning and systemic activating of the cultural factor taking into
55
account the existed conditions in Georgia will promote solving the existed problems in the
entrepreneurial business and forming more effective business environment (see Figure 3).
Figure 3. Comparative position of Georgia in terms of
the entrepreneurial global index components
Source: http://thegedi.org/
This will be a partially common model and interesting for any country. For example, as
can be seen from the graph, Estonia and Lithuania are closer to the benchmark markers of the
country in terms of entrepreneurial activity system (as a socio-economic system). Latvia and
Georgia are noticeably lagging behind, although Latvia has a better position in this respect,
except for the “Cultural Support” indicator (this indicator answers the question: How does the
country view entrepreneurship? Is it easy to choose entrepreneurship or corruption makes it
difficult for entrepreneurship compared to other career paths? – Acs, et al., 2018). Georgia is
ranked 6 among 190 economies in the ease of doing business, according to the latest World
Bank annual ratings. The rank of Georgia was improved to 6 in 2018 from 9 in 2017 (Ease of
Doing Business ... 2018).
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Kopsavilkums
Reģionālās sociāli ekonomiskās sistēmas un valsts teritoriālā struktūra
vietējo pašvaldību un uzņēmējdarbības modernizācijas kontekstā
Rakstā autors izskata valsts vietējās administratīvās reformas jautājumus un administratīvi teritoriālo objektu
pārveides īpatnības Gruzijā. Autors uzsver, ka ir jāņem vērā valstij raksturīgās ekonomiskās, politiskās,
sociālās, etniskās, kultūras un ekoloģiskās īpatnības. Tāpat ir svarīgi, lai jebkuru plānoto teritoriālo pārmaiņu
izejas punkts ir cilvēka primāro vajadzību apmierināšana un valsts pamatprasību ievērošana. Taču ir jāņem
vērā arī jaunie mūsdienu pasaules un globalizācijas izaicinājumi, kas ir saistoši ekonomikas zinātnei kopumā
un arī konkrētiem reģionālajiem pētījumiem. Rakstā uzsvērts, ka reģionālo pētījumu centrā ir jābūt konkrēta
reģiona sociāli ekonomiskajai sistēmai, kas atklāj visu sabiedrības dzīves un attīstības faktoru spektru lokālo
teritoriālo sistēmu un uzņēmējdarbības kontekstā. Pētījuma objekta izpētei ir jāizmanto sociāli ekonomiskā
pieeja, kuras ietvaros kultūru var izskatīt kā svarīgu reģiona attīstības faktoru, kas paaugstina
uzņēmējdarbības efektivitātes līmeni. Veiktais pētījums atklāj kultūras faktora īpatnības un iespējamās
izmaiņas Gruzijā.
Atslēgas vārdi: reģionālo pētījumu paradigma, reģionālās sociāli ekonomiskās sistēmas, kultūra kā
uzņēmējdarbības faktors.
Резюме
Региональные социально-экономические системы и
территориальная структура страны в контексте модернизации местного
самоуправления и предпринимательской деятельности
В статье системно рассматриваются вопросы реформирования местного государственного
администрирования, особенности преобразования административно-территориальных объектов на
примере Грузии. Подчеркивается необходимость учета экономических, политических, социальных,
этнических, культурных и экологических особенностей, существующих в стране. Подчеркивается,
что для любых намечаемых изменений в территориальной структуре исходной базой должно быть
удовлетворение первычных фундаментальных потребностей человека и общесистемных требований
государства. Вместе с этим особо важное значение придается новым реалиям и вызовам
современного этапа глобализации, что предявляет требования общего парадигмального характера к
самой экономической науке, к региональным исследованиям, в частности. В статье подчеркивается,
что объектом региональных исследований должна рассматриваться социально-экономическая
система регионального уровня, что позволяет комплексно отразить весь спектр факторов
жизнедеятельности и развития общества в рамках локалных территориальных систем, а также
предпринимательской деятельности. Социально-экономический подход к объекту исследования
позволяет культуру рассматривать в качестве важного фактора социально-экономического развития
региона и повышения уровня эффективности предпринимательской деятельности. Исследования
показывают направления возможных основных изменений культурного фактора на примере и с
учетом особенностей Грузии.
Ключевые слова: парадигмы региональных исследований, социально экономические системы региона,
культура как фактор предпринимательской активности.
58
Dr.hab. of economics, Professor Halina Shmarlouskaya
CIRCULAR ECONOMY: DIRECTIONS OF DEVELOPMENT
IN EUROPEAN UNION COUNTRIES
The essence, preconditions, forms of manifestation of the circular economy are analysed, the experience of
countries and leading international corporations in mastering new business models in a circular economy is
studied in the article. The purpose of the article is to reveal the main directions and features of the circular
economy development in the European Union countries. For this, it is necessary to reveal the essence and
preconditions of the circular economy; to determine its main directions of development and forms of
manifestations; to study the experience of the European Union countries and leading international corporations
in mastering new business models in a circular economy. General scientific methods (analysis, synthesis,
induction, deduction, scientific abstraction), systematic approach, economic-statistical methods were used in the
research. It is justified that the development of the circular economy involves a comprehensive restructuring of
legislation, the introduction of new technologies and new business models, causes external and internal, positive
and negative effects. Each country has national peculiarities of the transition to a circular economy concept. It is
shown that the leaders in mastering the model of circular economy and closed supply chain are the European
Union countries.
Key words: circular economy, business models, European Union.
JEL code: О 13, Q 01, Q 57
Introduction
The globalization of the world economy, along with positive consequences, has led to
an escalation of global problems (lack of resources, environmental pollution, etc.).
Possibilities for the solution of these problems arise in the conditions of a circular economy
model implementation.
The main preconditions for the circular economy formation are the digitalization and IT
development, which has a multidirectional impact on the world economy.
First, the digitalization of the global economy and the IT sector development create the
basis and the opportunity for introducing the circular economy business models. It contributes
to the transition to a non-linear economic model, which allows creating a closed-type
economic model, opening up new opportunities for the global problems solving. Thus, with
the spread of the Internet of Things (IoT), there is incredible opportunity to enable circular
innovation. For example, with sensor technologies becoming low cost and networking
becoming more pervasive, each component that goes into a manufacturing process will be
connected. The data you collect from those connections will allow you to know the source of
the product, how it was produced, and the energy consumed in its production (Dedicoat
2016). This data lies at the heart of the circular economy.
At the same time, the digitalization and the IT sector development are accompanied by
an escalation of global problems caused by an increase in consumption of resources and
energy, in electronic waste generation and a reduction in employment. Thus, according to the
United Nations data (“The Global E-Waste Monitor 2017: Quantities, Flows and Resources”)
in 2016 about 44.7 million tons of mobile phones, computers, TVs and other consumer
electronics were thrown out in the world. This weight is equal to 4.5 thousand Eiffel towers.
At the same time, only 20% of all electronic waste was recycled. And there are precious
metals in this waste (gold, silver, copper, platinum and others). It is estimated that in 2016 the
cost of the discarded precious materials that could be reused was 55 billion USA dollars. In
the European Union (EU) 12.3 million tons of electronics are thrown away every year. It’s
16.6 kg of e-waste per capita (in Norway – 28.5 kg) (UN 2017).
59
In general, according to Eurostat data the situation in the EU is as follows: 1) in 2016
the average amount of municipal solid waste per capita was equal to 482; the leaders are
Denmark, Norway, Germany; 2) the level of recycling municipal solid waste – 45.8%, the
leader is Germany – 66.1% (Hervey 2018).
One of the innovative approaches that allows determining effective ways to solve global
problems using digital technologies is the circular economy.
At the 46th International Economic Forum in Davos (2016) it was determined that
circular economy is the basis of the “Fourth Industrial Revolution”. By 2025 the circular
economy will annually provide an increase in global economic income of over 1 trillion USA
dollars, an annual productivity increase of 3%, a global domestic product increase of 7%
(MacArthur et al. 2014).
Each country has national peculiarities of the transition to a circular economy concept,
various priority directions of its implementation. It is shown that the leaders in mastering the
model of circular economy and closed supply chain are the European Union countries, they
identify the main directions of the circular economy development.
The purpose of the article is to reveal the main directions and features of the circular
economy development in the European Union countries. For this, it is necessary to reveal the
essence and preconditions of the circular economy; to determine its main directions of
development and forms of manifestations; to study the experience of the European Union
countries and leading international corporations in mastering new business models in a
circular economy.
The information basis of the study was the statistical data, analytical reviews of
international economic organizations (UNCTAD, WTO), Eurostat, studies of individual
scientists. General scientific methods (analysis, synthesis, induction, deduction, scientific
abstraction), systematic approach, economic-statistical methods were used in the research.
Theoretical discussion
The concept of a circular economy is being developed by scientists representing various
scientific fields, including economists, ecologists and sociologists. In historical terms, its
appearance is associated, for example, with the report of the Club of Rome “The Limits to
growth” (Meadows, et al. 1972), in which the authors substantiated the need to develop and
manufacture products suitable for efficient reuse and recycling.
In scientific literature a number of definitions are used. At the beginning of 2018 there
were more than 114 definitions of circular economy, made by various scientific schools,
specified in legislative acts of various countries, introduced into practice by international
organisations (Kirchherr et al. 2017). Among them: the circular economy, the economy of a
closed cycle (cyclic economy; closed-loop economy; closed supply chains). The most
commonly the following definitions are used.
The circular economy is an economic model that through the use of ICT is aimed at
restoring, conserving and renewing of resources, at controlling of the waste generation
process, their reduction and reuse, at increasing in employment. The circular economy is an
economy that has a restorative and closed nature (MacArthur et al. 2013).
The circular economic model leads to the development of the economy “3R” (reduce,
reuse and recycle), involving the optimisation of the production process, repeated or joint use
of the product and waste recycling. The basis of the circular economy is formed by closed
supply chains, its formation should lead to the realisation of the zero waste principle. Its
implementation in practice has led to the emergence of new business models.
During the past decades, in the theory of circular economy scientists have been studying
its features in terms of sustainable development, shortening the product life cycle, recycling,
etc. (D'Amato 2017). Special attention is paid to the content and experience of implementing
60
of innovative business models of the circular economy (Accenture 2014; Ghisellini, Cialani
Ulgiati 2014; Gray, Charter 2008; Lacy, Rutqvist 2015; Батова, Сачек, Точицкая 2018a).
Scientists are also exploring such aspects as possible areas for the circular economy
implementation (Ghisellini et al. 2014; Heshmati 2016); positive and negative effects of its
functioning and barriers for its development (Beuren et al. 2013; Firnkorn, Muller, 2012;
Shafiee, Stec 2014; Батова, Сачек, Точицкая 2018a; Toxopeus, Achterberg, Polzin 2018);
measures of government stimulation (Батова, Сачек, Точицкая 2018b; Pakhomova, Richter,
Vetrova 2017); development of indicators for assessing the circular economy development
and their testing on the example of a number of countries (Pakhomova, Richter, Vetrova
2017; Шершунович, Точицкая 2018). The country features of the circular economy
implementation (Батова, Сачек, Точицкая 2018; Сачек, Точицкая, Батова 2018) and
sources of financing the circular economy projects (Nissinen 2018; Peake 2017; Батова,
Сачек, Точицкая 2018) are also studied.
The circular economy and innovative business models
The circular economy implementation requires the change of the economic model.
During the 20 century there was a linear model based on the principle “take, make, waste”.
This involves providing raw materials, organisation of production, waste disposal. The
digitalization contributes to the transition to a non-linear economic model, that allows
optimising the production process, creating a closed-type economic model.
The non-linear model is a circular economic model based on the principle “take, make,
reuse”. It involves providing raw materials, organisation of production, reuse of waste in the
form of raw materials (Dedicoat 2016).
In this way the circular model leads to the development of the economy “3R” (reduce,
reuse and recycle), involving the optimisation of the production process, repeated or joint use
of the product and waste recycling (Dedicoat 2016). The basis of the circular economy is
formed by closed supply chains, its formation should lead to the realisation of the zero waste
principle (figure 1).
Figure 1. The difference between a linear economy and a circular one
61
The development of a circular economy has various forms of manifestation:
1) integration of enterprises, sometimes from various industries, into a closed production
chain;
2) waste recycling;
3) reuse of goods;
4) export/import of secondary raw materials to be processed by companies in different
countries.
Its implementation in practice has led to the emergence of new business models. The
classification of innovative business models of the circular economy was developed by
experts from Accenture (Accenture 2014).
Of interest is the experience of countries and international corporations in mastering
new business models in a circular economy. Among them: circular suppliers, resources
recovery, sharing platforms, product life extension, рroduct as a service (Accenture 2014;
Батова, Сачек, Точицкая 2018a).
1) Circular suppliers – a business model in which limited resources are replaced with fully
renewable sources (fully recyclable or biodegradable resources) (Renault, Ford Motor
Company, IKEA, etc.). For example, in Renault 85% of car parts are suitable for reuse
and 95% of parts are retrieved at the end of their life.
2) Resources recovery – a business model consisting in recovery and reuse of resources,
ensuring the reduction of waste and use of return flows in the production. For example,
companies in Denmark: the manufacturer of drugs Novo Nordisk, the manufacturer of
enzymes Novozymes and DONG Energy, together with the largest oil refinery, operated
by Statoil, exchange waste and by-products.
3) Sharing platforms – a business model that is built on the exchange or sharing of goods
and assets, providing interaction between product users. First, it led to changes in
consumer relations between themselves (Consumer to Consumer, C2C). For example, in
the sphere of transport exchange (BlaBlaCar – the world's largest international online
search service for car travel companions, RelayRides – car rental service, Airbnb – a
popular platform in the world for renting and leasing private housing, Rent-a-Park,
TaskRabbit, NeighborGoods). Second, it led to changes in business and consumer
relations (Business to Consumer, B2C). For example, 3DHubs platform that unites
industrial designers with 3D printers owners, Tool Library, etc. Third, it certainly led to
changes in Business to Business relations (B2B).
4) Product life extension – a business model that allows companies extending the products
life cycle by repairing, upgrading, renovating or restoring, including product
refurbishment and/or component remanufacturing, waste/products recycling (Ponsse, SR-
Harvesting, Swappie, Taitonetti, BMA Ergonomics).
5) Product as a service – a model in which customers use products by “leasing”.
The use of the circular economy business models allows reducing material, energy and
environmental costs, integrating enterprises into a closed production chain. In this regard in
the developed countries new requirements are imposed on imported goods: products must
meet the criteria of circularity, including reusability, extended service life, minimal waste, etc.
The most suitable for the circular economy creation are mechanical engineering,
automobile, pharmaceutical, aviation and aerospace industries, production of chemical and
medical equipment, home appliances and electronics, etc.
In general, according to experts of UPS and GreenBiz, it is assumed that the high-tech
sector is the most promising in adopting a circular economic model. First of all, it concerns IT
industries (electronics, computers and mobile phones production), since in these industries it
is the most easily to integrate the systems of recycling and of products reuse. Moreover, the
IT industry is a great example of one that “needs” implementation of new business model. For
most technology companies top environmental challenges are related to energy and disposing
62
of their products at their end of life. Thus, according to the United Nations data (“The Global
E-Waste Monitor 2017: Quantities, Flows and Resources”) in 2016 about 44.7 million tons of
mobile phones, computers, TVs and other consumer electronics were thrown out in the world.
At the same time, only 20% of all electronic waste was recycled. With eWaste becoming one
of the fastest growing waste streams, there is a need to approach this production, use and
reuse from a circular mindset.
So, the innovative business models ensure that technical and biological materials flow
continuously within the economy, safeguarding valuable stocks and decoupling growth from
finite natural resources. It enables businesses to enhance their profit margins by recovering,
regenerating and redeploying these resources most effectively. But one company or one
industry doing this alone will not be enough (Dedicoat 2016). A network of companies,
working and innovating together, is what will make possible this transformation.
In terms of global economy and society development a circular economy and new
business models creating can help provide accelerating economic growth and sustainable
development in the world.
EU countries experience
The leaders in mastering the model of circular economy and closed supply chain are the
EU countries. The EU countries identify the main directions of the circular economy
development. In the EU countries, the circular economy is considered a
1) a priority in economic development;
2) a mechanism to maintain independence from the primary resources suppliers and to
ensure economic security.
In addition, each country has national characteristics of this concept implementation.
Among the reasons for the relevance of the circular economy development are: waste
generation growth and the degree of waste recycling.
So, according to Eurostat data the situation in the EU is as follows: in 2016 the average
amount of municipal solid waste per capita was equal to 482; the leaders are Denmark (627),
Norway (754), Germany (627) (table 1).
Table 1
The size of municipal solid waste per capita in 2010–2016, kg/person
Country 2010 2012 2014 2016
EU 504 485 478 482
Sweden 439 450 438 443
Denmark – 791 789 777
Finland 470 506 482 504
Netherlands 571 549 527 520
Germany 602 619 631 627
Czech 318 308 310 339
Hungary 403 402 385 379
Poland 316 317 272 307
Lithuania 404 445 433 444
Norway 469 477 423 754
Source: Hervey 2018; Шершунович, Точицкая 2018.
The Netherlands is the leader in terms of food waste (541 kg), Slovenia has the lowest
value – 72 kg. The nine countries with the lowest levels of municipal and food waste
generation are in Central and Eastern Europe (Hervey 2018).
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Moreover, in the European Union (EU) 12.3 million tons of electronics are thrown away
every year. It’s 16.6 kg of e-waste per capita (in Norway – 28.5 kg) (UN 2017).
In this regard, the development of the waste processing is of great importance. In the
circular economy, it is important that the waste of one industry was a raw material for
another, contributing to the transition to a closed-loop economy in which waste generation is
reduced to zero, and the resources are used in the most efficient way. In general, this reduces
the need for raw materials, the demand for primary resources and changes the negative impact
of waste generation on the environment. In this regard, the level of municipal solid waste
processing is included in indicators of the Sustainable Development Goals. Data for the EU
countries indicate that the average level of municipal solid waste recycling – 45.8% (table 2).
The leader is Germany – 66.1% (Hervey 2018).
Table 2
The level of municipal solid waste recycling in 2010–2016, %
Country 2010 2012 2014 2016
EU 38,3 41,5 43,7 45,8
Sweden 48,1 47,2 49,9 48,9
Denmark – 42,1 45,1 47,7
Finland 32,8 33,3 32,5 42,0
Netherlands 49,2 49,4 50,9 53,1
Germany 62,5 65,2 65,6 66,1
Czech 15,8 23,2 25,4 33,6
Hungary 19,6 25,5 30,5 34,7
Poland 21,4 19,6 32,3 44,0
Lithuania 4,9 23,5 30,5 48,0
Norway 42,1 39,8 42,2 38,2
Source: Hervey 2018; Шершунович, Е., Точицкая, И. 2018.
In the EU countries the highest level of waste recycling is in the construction and
buildings dismantling. So, in Denmark, the Netherlands, Germany, the Czech Republic,
Poland, Lithuania the recycling of construction waste in some years exceeded 90%
(Шершунович, Точицкая 2018).
The development of waste recycling contributes to the formation of markets for
secondary raw materials and, accordingly, to their export and import. Especially it concerns
such secondary raw materials as: plastic, paper and cardboard, precious metals, ferrous
metals, copper, aluminum and nickel. For example, paper and metals are in high demand in
the EU countries.
The EU countries among the directions of a circular economy formation it is possible to
single out the following:
creation of legislation;
providing state financial support, identifying incentives;
investment in research and development and innovative projects;
transition from a linear to a circular business models;
introduction of digital innovative technologies;
integration of enterprises, including from various industries, into a closed supply chain;
implementation of business models.
Thus, in the EU the legislation on the circular economy is being actively developed
(table 3).
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Table 3
Legislative acts on circular economy in EU
2012 Germany Act on Circular Economy
2015 EU Package of Measures for Circular Economy
2016 Finland Finnish Circular Economy Roadmap for 2016–2020
2016 Netherlands National Program of Circular Economy until 2020
2017 EU European Circular Economy Stakeholder Platform
2018 The United
Kingdom
Standard BS 8001: 2017 “The introduction of the circular economy
principles in the organization”
2018 EU European Plastics Strategy in Circular Economy
2018 France Circular Economy Roadmap
Source: European Commission 2019.
So, in 2015, the European Commission adopted an Circular Economy Action Plan,
which includes measures that will helpstimulate Europe's transition towards a circular
economy, boost global competitiveness, foster sustainable economic growth and generate new
jobs.
The EU Action Plan for the Circular Economy establishes a concrete and ambitious
programme of action, with measures covering the whole cycle: from production and
consumption to waste management and the market for secondary raw materials and a revised
legislative proposal on waste. The annex to the action plan sets out the timeline when the
actions will be completed.
In 2018:
Europe-wide EU Strategy for Plastics in the Circular Economy and annex to transform
the way plastics and plastics products are designed, produced, used and recycled. By
2030, all plastics packaging should be recyclable. To achieve its ambitious vision, the
Strategy foresees actions to improve the economics and quality of plastic recycling; to
curb plastic waste and littering; to drive investments and innovation; and to harness
global action. To reduce the leakage of plastics into the environment, the Commission has
also adopted a new proposal on Port Reception Facilities, to tackle sea-based marine litter
and published a report on the impact of the use of oxo-degradable plastic, including oxo-
degradable plastic carrier bags, on the environment.
Communication on options to address the interface between chemical, product and waste
legislation that assesses how the rules on waste, products and chemicals relate to each
other.
Monitoring Framework on progress towards a circular economy at EU and national level.
It is composed of a set of ten key indicators which cover each phase – i.e. production,
consumption, waste management and secondary raw materials – as well as economic
aspects – investments and jobs – and innovation.
Report on Critical Raw Materials and the circular economy that highlights the potential to
make the use of the 27 critical materials in our economy more circular (European
Commission 2019).
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In 2018, the European Commission adopted other ambitious initiatives in the context of
the Circular Economy Action Plan:
Proposal for a Directive on the reduction of the impact of certain plastic products on the
environment – implementation of the EU Strategy for Plastics in the Circular Economy.
Proposal for a Regulation on minimum requirements for water reuse. The proposal is
setting minimum requirement to boost the efficient, safe and cost-effective reuse of water
for irrigation. Deliverable of the Circular Economy Action Plan.
As a result, a number of documents were adopted. Among them are the following:
EU Strategy for Plastics in the Circular Economy (communication).
Communication on the Interface between chemicals, products and waste legislation (staff
working document and factsheet).
Monitoring framework for the circular economy (staff working document, factsheet and
Eurostat monitoring framework tool).
The revised legislative framework on waste has entered into force in July 2018. It sets
clear targets for reduction of waste and establish long-term path for waste management and
recycling.
Key elements of the revised waste proposal include:
A common EU target for recycling 65% of municipal waste by 2035.
A common EU target for recycling 70% of packaging waste by 2030.
There are also recycling targets for specific packaging materials: paper and cardboard –
85%; ferrous metals – 80%; aluminium – 60%; glass – 75%; plastic – 55%; wood – 30%.
A binding landfill target to reduce landfill to maximum of 10% of municipal waste by
2035;
Separate collection obligations are strengthened and extended to hazardous household
waste (by end 2022), bio-waste (by end 2023), textiles (by end 2025).
Three years after adoption, the Circular Economy Action Plan is fully completed. Its 54
actions have been delivered. On 4 March 2019, the European Commission adopted a
comprehensive report on the implementation of the Circular Economy Action Plan. The report
presents the main achievements under the Action Plan and sketches out future challenges to
shaping our economy and paving the way towards a climate-neutral, circular economy where
pressure on natural and freshwater resources as well as ecosystems is minimized (European
Commission 2019).
The analysis found there is potential for further strengthening the policies, especially as
concerns the circular design of products such as textiles and furniture. Also, more could be
done to support consumers and circular sectors such as reuse and repair.
In perspective, as suggested in the Reflection Paper Towards a sustainable Europe by
2030, the circular economy should be made a backbone of the EU industrial strategy, enabling
circularity in new areas and sectors, life-cycle assessments of products should become a norm
and the eco-design framework should be broadened as much as possible (Report from the
Commission to the European Parliament, the Council, the European economic and social
committee and the committee of the regions on the implementation of the Circular Economy
Action Plan 2019).
Implementing the Circular Economy Action Plan has accelerated the transition towards
a circular economy in Europe.
Finland was the first country in the world to develop a national roadmap for the
transition to a circular economy. Scotland was the first country to join the Circular Economy
100 (CE100) club, initiated by the Ellen MacArthur Foundation.
Germany, Great Britain and France occupy leading positions in the circular economy
development (for example, taking into account such indicators as amount of investment,
patents and jobs in the circular sectors of the economy). In the circular economy ranking –
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2018, Germany ranks first in the number of patents related to circular economy (1260). The
United Kingdom and Germany are leaders in “circular” investment.
Of interest are, for example, the European Circular Economy Stakeholder Platform
created in 2017 by the European Commission and the European Economic and Social
Committee in order to share experiences, strategies, knowledge, to facilitate the transition
from a linear to a circular model of the economy.
It should be noted that the development of a circular economy requires substantial
investment. This is confirmed by the data from the report on the implementation of the
Circular Economy Action Plan, which notes the following. To accelerate the transition to a
circular economy, it is necessary to invest in innovation and to provide support for adapting
the industrial base. Over the 2016–2020 period, the Commission has stepped up efforts in
both directions totalling more than €10 billion in public funding to the transition. This
includes:
€1.4 billion from Horizon 2020 until 2018 (on areas such as sustainable process
industries, waste and resource management, closed loop manufacturing systems or the
circular bio-economy), among which € 350 million are allocated to making plastics
circular. The Commission has published an inventory of the projects relevant to the
circular economy funded under H2020 between 2016 and 2018.
At least €7.1 billion from Cohesion Policy (€1.8 billion for uptake of eco-innovative
technologies among SMEs and €5.3 billion to support the implementation of the EU
waste legislation); in addition, significant support is available through smart
specialisation for market-led innovation and deployment.
€2.1 billion through financing facilities such as the European Fund for Strategic
Investments and Innovfin.
At least €100 million invested through LIFE in more than 80 projects contributing to a
circular economy (Report from the Commission to the European Parliament, the Council,
the European economic and social committee and the committee of the regions on the
implementation of the Circular Economy Action Plan 2019).
Of interest are also different programs for innovative projects financing, for example,
those of the European Investment Bank (EIB). The total amount of loans to circular economy
projects in 2012–2016 amounted to 2.4 billion euros (EIB, 2017).
The experience of the EU countries also shows that one of the main prerequisites for the
development of a circular economy was a change in business models. In the circular
economy, the focus is too often on materials, side streams and recycling; instead, what should
be at the core of the change is new business models and a total redesign of value chains.
So, according to representatives of the Finnish Innovation Fund “Sitra” (Finnish:
Suomen itsenäisyyden juhlarahasto) “In the future, most of the value creation of companies
will come from five circular economy business models: product as a service; renewability;
sharing platforms; extending the product life cycle; and resource efficiency and recycling”
(Sorasahi, H., Sinervo, R. 2019).
Among successful examples of European companies that introduce business models of
the circular economy are the following (Sorasahi, H., Sinervo, R. 2019).
France company Michelin is an excellent example of the “product as a service” model
realisation. In 2013, the company moved from selling tyres to selling mileage to its heavy
goods vehicle customers. Today, the billion-dollar Michelin Solutions business covers
maintenance and additional services, such as route optimisation and fleet management.
Service-oriented thinking, new markets for used tyres and new partnerships have completely
changed the tyre design process. The focus is now on eco-design and adaptability.
Finnish company Lindström. It offers work uniforms as a service: the uniforms remain
the property of Lindström to the end of their life cycle. The operating model is supported by
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RFID chips, which collect information on the use and maintenance of the garments to
optimise the customer experience. With such service contracts, companies often will be able
to increase other sales to customers. The product as a service business model is also applied
by MaaS Global and Kyyti Group, who want to transform the mobility value chain based on
private cars by providing mobility as a service on digital platforms.
Spinnova is developing a wood-based, easy-to-recycle textile fibre to replace cotton,
which is in many ways a burden on the environment.
Combi Works’ AirFaas service is a digital sharing platform that innovatively brings
together those that own production capacity and those that need it. In this way, factories can
be used more and those that need production capacity can acquire it without having to own a
factory. Sharing platforms thus enable more efficient use of underused products and
resources. Through such platforms, a company (B2B) or consumer (B2C, C2C) will be able to
use a product or service without having to own it. Customers will benefit from the flexibility
of the system and from access to varied and affordable resources.
Valtra created a new business from remanufacturing used gearboxes. This business has
grown at an annual rate of 30 to 40 per cent. Valtra’s business is based on extending the
product life cycle, where the product remains in its original use as long as possible – for
example, by means of repair and refurbishment. From the business point of view, the model
creates new growth opportunities in the aftermarket.
Betolar turns building industry waste into construction materials with a carbon footprint
up to 90 per cent smaller than conventional concrete. The solution enables customers to make
use of their waste and save on waste charges. Construction companies receive affordable and
high-quality, low-carbon building materials (Sorasahi, H., Sinervo, R. 2019).
The development of the circular economy is accompanied by the appearance of external
and internal, positive and negative effects of its functioning.
The EU Monitoring Framework for the Circular Economy shows that the transition has
helped put the EU back on a path of job creation. In 2016, sectors relevant to the circular
economy employed more than four million workers, a 6% increase compared to 2012.
Additional jobs are bound to be created in the coming years in order to meet the expected
demand generated by fully functioning markets for secondary raw materials.
Circularity has also opened up new business opportunities, given rise to new business
models and developed new markets, domestically and outside the EU. In 2016, circular
activities such as repair, reuse or recycling generated almost €147 billion in value added while
standing for around €17.5 billion worth of investments (Report from the Commission to the
European Parliament, the Council, the European economic and social committee and the
committee of the regions on the implementation of the Circular Economy Action Plan 2019).
In the Netherlands experts estimate the annual effect of the circular economy
functioning to be 7.3 billion euros and 54 000 additional jobs. In the UK developing a circular
economy will help to create 500 000 jobs, and economic effects will amount to 12 billion
euros (Pakhomova, N.V., Richter, K.K., Vetrova, M.A. 2017).
For example, among the internal effects from introducing the circular economy model
in the automotive industry, are:
– reduction in the consumption of raw materials by 98% (Smith et al., 2015);
– energy savings – by 83%;
– reduction in the products cost – up to 40% and carbon dioxide emissions – up to 87%
(Automotive Parts Remanufacturing Market: Global Industry Analysis and Forecast
2016–2024. 2015);
– creation of additional jobs.
Of particular importance is the formation of environmental effects, due to the reduction
in the waste amount, reduction of environmental pollution.
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Adopting circular-economy principles could also generate a net economic benefit of
€1.8 trillion by 2030. A circular economy, enabled by the technology revolution, would allow
Europe to grow resource productivity by up to 3 percent annually. This would generate a
primary-resource benefit of as much as €0.6 trillion per year by 2030 to Europe’s economies.
In addition, it would generate €1.2 trillion in nonresource and externality benefits, bringing
the annual total benefits to around €1.8 trillion compared with today (MacArthur, E. et al.
2015).
Thus, each country has national peculiarities of the transition to a circular economy
concept, various priority directions of its implementation. Development involves a
comprehensive restructuring of legislation, the introduction of new technologies and new
business models.
European countries experience in circular economy creation is of great interest for
emerging market countries.
Conclusions
One of the innovative approaches that allow determining effective ways to solve global
problems using digital technologies is the circular economy that has a restorative and closed
nature. The concept of a circular economy is being developed by scientists representing
various scientific fields, including economists, ecologists and sociologists. In scientific
literature a number of definitions are used. Among them: the circular economy, the economy
of a closed cycle (cyclic economy; closed-loop economy; closed supply chains). The circular
economy is an economic model that through the use of ICT is aimed at restoring, conserving
and renewing of resources, at controlling of the waste generation process, their reduction and
reuse, at increasing in employment. The circular economy is an economy that has a restorative
and closed nature. The circular economy implementation requires the change of the economic
model. The digitalization contributes to the transition to a non-linear economic model.
The development of a circular economy has various forms of manifestation:
1) integration of enterprises, sometimes from various industries, into a closed production
chain; 2) waste recycling; 3) reuse of goods; 4) export/import of secondary raw materials to
be processed by companies in different countries. Its implementation in practice has led to the
emergence of new business models. Among them: circular suppliers, resources recovery,
sharing platforms, product life extension, рroduct as a service. The most suitable for the
circular economy creation are mechanical engineering, automobile, pharmaceutical, aviation
and aerospace industries, production of chemical and medical equipment, home appliances
and electronics, etc.
The leaders in mastering the model of circular economy and closed supply chain are the
EU countries. The EU countries identify the main directions of the circular economy
development. In the EU countries, the circular economy is considered as a priority in
economic development, a mechanism to maintain independence from the primary resources
suppliers and to ensure economic security. Each country has national peculiarities of the
transition to a circular economy concept, various priority directions of its implementation.
Among the directions of a circular economy formation it is possible to single out the
following: creation of legislation; providing state financial support, identifying incentives;
investment in research and development and innovative projects; transition from a linear to a
circular business models; introduction of digital innovative technologies; integration of
enterprises, including from various industries, into a closed supply chain; implementation of
business models.
The development of the circular economy causes different external and internal, positive
and negative effects. Of particular importance is the formation of environmental effects, due
to the reduction in the waste amount, reduction of environmental pollution. Over the 2016–
69
2020 period, the Commission has stepped up efforts in both directions totalling more than €10
billion in public funding to the transition. In 2016, sectors relevant to the circular economy
employed more than four million workers, a 6% increase compared to 2012. In 2016, circular
activities such as repair, reuse or recycling generated almost €147 billion in value added while
standing for around €17.5 billion worth of investments.
The experience of the EU countries also shows that one of the main prerequisites for the
development of a circular economy was a change in business models. In the circular
economy, the focus is too often on materials, side streams and recycling; instead, what should
be at the core of the change is new business models and a total redesign of value chains. In
perspective, the circular economy should be made a backbone of the EU industrial strategy,
enabling circularity in new areas and sectors, life-cycle assessments of products should
become a norm and the eco-design framework should be broadened as much as possible.
European countries experience in circular economy creation is of great interest for
emerging market countries.
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Kopsavilkums
Aprites ekonomika: attīstības virzieni Eiropas Savienības valstīs
Rakstā autore analizē aprites ekonomikas būtību, priekšnoteikumus, pamatvirzienus un izpausmes, pēta dažādu
valstu un starptautisko kompāniju aprites ekonomikas biznesa modeļu ieviešanas pieredzi. Raksta mērķis aprites
ekonomikas pamatvirzienu un īpatnību analīze Eiropas Savienības valstīs. Mērķa sasniegšanai ir risināti šādi
uzdevumi: atklāta aprites ekonomikas veidošanās būtība un priekšnoteikumi; atklātas tās attīstības pamatvirzieni
un izpausmes veidi; izpētīta Eiropas Savienības valstu un starptautisko kompāniju aprites ekonomikas biznesa
modeļu ieviešanas pieredze. Pētījumā izmantotas vispārzinātniskās metodes (analīze, sintēze, indukcija,
dedukcija, zinātniskā abstrakcija), sistēmiskā pieeja, ekonomiskās statistikas metodes. Autore secina, ka aprites
ekonomikas attīstībai ir nepieciešama kompleksa likumdošanas pārveide, jaunu tehnoloģiju un biznesa modeļu
ieviešana, kas kopumā rada iekšējas un ārējas, pozitīvas un arī negatīvas sekas. Katrai valstij ir vērojamas aprites
ekonomikas koncepcijas nacionālās īpatnības un dažādi tās īstenošanas prioritārie virzieni. Rakstā uzsvērts, ka
aprites ekonomikas modeļa un noslēgtās ražošanas ķēdes modeļa ieviešanas līderes ir Eiropas Savienības valstis.
Atslēgas vārdi: aprites ekonomika, biznesa modeļi, Eiropas Savienība digitalizācija, 3R ekonomika, resursu
atgūšana, koplietošanas platformas, produktu dzīves pagarināšana.
Pезюме
Циркулярная экономика: направления развития в странах Европейского союза
В материале проанализирована сущность, предпосылки, основные направления и проявления
циркулярной экономики, изучен опыт стран и ведущих международных корпораций в освоении новых
бизнес-моделей циркулярной экономики (восстановление ресурсов, платформы совместного
использования, продление ресурса продукта и т. д.).
Основным условием формирования циркулярной экономики является дигитализация, которая оказывает
разнонаправленное влияние на экономику. Во-первых, это открывает новые возможности для решения
глобальных проблем, но в то же время сопровождается эскалацией глобальных проблем, вызванных
увеличением потребления ресурсов и энергии, образованием электронных отходов и сокращением
занятости. Во-вторых, это способствует переходу к нелинейной экономической модели, которая
позволяет создать экономическую модель закрытого типа. Развитие циркулярной экономики имеет
различные формы проявления и предполагает комплексную перестройку законодательства, внедрение
новых технологий и новых бизнес-моделей, вызывает внешние и внутренние, положительные и
отрицательные последствия. Каждая страна имеет национальные особенности перехода к концепции
циркулярной экономики, различные приоритетные направления ее реализации. В статье представленно,
что лидерами в освоении модели циркулярной экономики и замкнутой цепочки производства являются
страны Евросоюза, они определяют основные направления развития циркулярной экономики.
Ключевые слова: циркулярная экономика, бизнес-модели, дигитализация, экономика “3R”,
восстановление ресурсов, платформы совместного использования, продление ресурса продукта.
72
Mg.oec., Lecturer Anita Kokarevica
Dr.oec., Leading Researcher Elita Jermolajeva
ECONOMIC ASPECTS OF TOBACCO PRODUCT CONSUMPTION
As indicated by the World Health Organization, consumption of tobacco causes over 7 million deaths a year
worldwide. Though smoking is the same kind of addiction as consumption of alcohol or narcotic substances, it
does not cause immediate consequences; in the long term, however, it can inflict major damage to one's health,
drastically decreasing longevity and the quality of life of smokers themselves and the people around them,
causing considerable economic losses to the national economy as a result. This study assesses the costs and
benefits ensuing from the economic influence of consumption of tobacco products. In spite of the smoking
restriction policy developed and implemented in Latvia in accordance with the regulatory acts of the EU, the
population of Latvia still lacks proper knowledge and idea of the consequences of addictive substance use.
Methods used in the study: descriptive and comparative statistics method, correlation analysis and cost-benefit
analysis, as well as expert interviews and the triangulation method.
Key results of the study: A share of about 40% of the total disease burden in Latvia is associated with various
behavioural risks, with smoking among the most essential ones (11.5%). Restriction of consumption of tobacco
products positively affects the indices of passive smoking and reduces the exposure of active smokers. In 2018,
excise tax proceeds from tobacco products made up 20% of the total amount of excise tax, exceeding the figures
of 2017 by 8.86%. Calculation of the cost-benefit parameter and division of discounted revenues by discounted
costs have led to the inference that revenues are 2.35 greater than costs, which is indicative of the fact that
smokers produce considerable income for the national budget within the context of the existing regulatory
framework and restrictions.
Key words: incidence and restriction of tobacco products, economic impact.
JEL code: I15, I12, H51, E29
Introduction
The 53 countries of the European Region have a total population of about 900 million
inhabitants, of whom 252 million people, or 28%, are smokers – which implies that smoking
is a major public health problem in the European Region (World Health Organization, 2017).
High percentage of smokers leads to increased smoking-induced mortality rates, whereas the
most common causes of death are chronic diseases essentially affecting one's lifespan and the
quality of life, cardiovascular diseases, chronic bronchitis, emphysema, asthma and various
malignant tumours. Smoking is also associated with a number of other diseases, e.g., diabetes
mellitus, rheumatoid arthritis, cataract, reproductive system disorder and other health
conditions that affect most organs Passive smoking affects not just the smoker, but other
people who may be around as well. Passive smoking is the cause of over 600 000 deaths each
year at the global scale, of whom 31% are children. Most commonly, these are deaths from
various chronic disease, such as asthma or respiratory system infections. Loss of productivity
and both direct and indirect healthcare costs exert a considerable social and economic
pressure on the country (World Health Organization, 2017).
Different studies of habits that affect the health of the population are carried out in
Latvia regularly, for instance, the studies of habits that affect the health of Latvian population
within the boundaries of the cooperation project between Finland and the Baltic States,
internationally known as FINBALT health monitoring. Statistical data on the prevalence of
tobacco product usage and the ensuing diseases is summarised on a regular basis, but the
economic impact thereof has not been assessed yet.
The goal of the study is to assess the economic impact of usage of tobacco products
from the standpoint of costs and benefits at the individual level and at the national level.
73
The study uses quantitative methods – descriptive and comparative statistics method,
correlation analysis and cost-benefit analysis, as well as qualitative methods – expert
interviews and the triangulation method.
Theoretical discussion
About 6.5 trillion cigarettes a year, i.e. 18 billion cigarettes a day are sold worldwide.
High profits of the tobacco industry are based on the poorer segment of the population in
terms of both demand and supply – of the roughly estimated one billion-large world's smoker
population, 80% live in countries with low or medium income level, whereas most of 33
million tobacco farm workers live in the world's poorest regions (Martin, 2018).
Annual summary on Latvia presented by the World Health Organization (WHO) in its
report of the global tobacco epidemics for 2017 states that in the average, tobacco users (of
both genders) account for 24.7% of young people (25.3% of men and 23.9% of women) and
37.6% of adults (53.6% of men and 22.3% of women) (World Health Organization, 2017b).
In 2017, WHO presented a statistical report on the impact of tobacco on the society.
The total annual costs incidental to the use of tobacco products in the world are 10 times
greater than emergency medical care expenditures. These costs are equal to 40% of the
common education budget of European countries and roughly equal to the GDP of Canada,
one of the world's richest countries. By reducing one's lifespan, tobacco usage conduces early
death. Half of all smokers die with conditions caused by tobacco usage, as tobacco contains
over 7000 toxic substances, including carcinogenic ones. Of the total annual global death toll,
12% of deaths are associated with tobacco smoking, 14% die from non-infectious diseases
(including cardiovascular conditions, cancer, lung diseases and diabetes), and 5% die from
infectious diseases (World Health Organization, 2017a).
According to the global practice, availability of tobacco is determined by four main
approaches:
1) regulatory framework;
2) manufacturers’ responsibility for the compliance of their products;
3) Pigouvian tax;
4) tradable permits for distribution of tobacco products.
Within the boundaries of the regulatory framework, the government either determines
the desired product or service production and/or consumption level (e.g., by means of quotas),
or indirectly affects production and/or consumption by means of regulating contextual factors
(GHK, 2012).
The Pigouvian tax is a tool proposed by economist Arthur Pigou, which implies
taxation of each unit of a product that causes negative external effects (Pigou, 1932). This
means that government revenues from the production / consumption of tobacco products must
be sufficient to compensate for the costs borne by those who suffer from the effect of tobacco
consumption.
Tradable permits as a policy instrument were proposed and developed by the Nobel
prize-winner Ronald Harry Coase. He debated on the optimal (permissible) pollution levels
that could be defined, so quotas within the boundaries of these permissible levels could also
be traded. However, the need to maintain a legal and economic system that would allow
determining, issuing and exchanging quotas in a substantiated and transparent manner causes
additional transaction costs that greatly complicate the maintenance of the permit market
(Coase, 1992).
The legal responsibility concept relies on individual and public property rights. A
person or entity infringing the rights of another person or entity must reimburse the aggrieved
party for the harm thus inflicted thereupon, and the actual reimbursement is usually defined in
the course of judicial proceedings. The harm that a tobacco manufacturer can inflict upon a
74
person is assessed within the boundaries of the Civil Law. In turn, failure to respect the rights
of the public is a subject of public law. Responsibility pertaining to tobacco products is
stipulated by the Tobacco Products Directive 2014/40/ES (Directive 2014/40/ES, 2014).
The choice of regulation mechanisms by the government and the performance of these
instruments depend on the size of the tobacco market, consumption prevalence and
geopolitical factors.
Results of the study and discussion
1. Tobacco market volumes and illegal distribution
Legal turnover of tobacco in Latvia (see Fig. 1) is steadily maintained at the average
level of 2 billion cigarettes and varieties thereof a year, as can be determined in reliance upon
the statistical data on tobacco products delivered for consumption within the period of 2012 to
2018 (VID, 2018).
Figure 1. Dynamics of tobacco turnover in Latvia within the period of 2013 to 2018,
billion pcs. and EUR
Source: developed by the authors based on the State Revenue Service data, 2018.
According to the data provided by the State Revenue Service, excise tax revenues from
the sale of tobacco products in 2018 were 208.8 million EUR, which is 8.86% more than in
2017 (191.8 million EUR).
The study involved a search for data on the statistical regions of Latvia, yet no such data
has been obtained as of now. A review of data on territories outside Riga leads to the
inference that the habits of tobacco product users within these other territories tend to change
slightly over time (see Fig. 2). Another inference based on the analysis of results of the study
of habits affecting the health of the Latvian population over the period of 1998 to 2016 is that
the percentage of smokers in rural territories grows faster than in cities. It should be noted,
however, that the difference is not essential, as the dynamics of prevalence do not exceed 5%.
Thousand pcs. EUR
75
Figure 2. Smoker prevalence by territorial breakdown over the period of 1998 to 2016, %
Source: developed by the authors based on FINBALT data, 1998–2016.
According to the data acquired in the course of a study carried out by KPMG, one of the
largest global networks of professional audit, fiscal and consulting service providers, the
consumption of cigarettes decreases in European countries (Switzerland and Norway), e.g., in
2017, the total consumption has reduced by 3% as compared to 2016, whereas the
consumption of smuggled cigarettes dropped by 7.4%. In turn, the average percentage of
smuggled cigarettes in Europe in 2017 was over 8.7% (44.7 billion units) of the total
consumption of cigarettes, and the amount of tax proceeds lost as a consequence totalled to
about 10 billion Euros. Cigarettes were mainly smuggled from Ukraine and Belarus (KPMG,
2018).
The total number of cigarettes brought from Latvia to other European countries in 2017,
both legal and smuggled, was 123 million – mainly to Estonia (29 million units)), Sweden (17
million units), Finland (17 million units), Germany (16 million units) and the United
Kingdom (15 million units). The average price of a pack of cigarettes was 3.24 EUR in
Estonia, 6.12 EUR in Finland, 6.00 EUR in Sweden and as much as 8.83 EUR in the United
Kingdom. Latvia still retains its largest percentage of smuggled and counterfeit cigarettes in
the European Union – due to that, the annual losses of the Latvian budget due to unpaid taxes
for smuggled cigarettes are about 59 million EUR. Even though in 2017 the amount of
smuggled cigarettes in Latvia has decreased by 1.5% as compared to 2016, Latvia still
remained the only Member State of the European Union where the percentage of smuggled
cigarettes in the total consumption volumes exceeds 20%. In Estonia and Lithuania, the
percentage of illegal cigarette trade in 2017 was, respectively, 11.3% and 17.8%. The total
consumption of cigarettes in Latvia in 2017 was 2.28 billion, which is 6.6% less as compared
to 2016. In terms of actual numbers, the share of counterfeit and smuggled cigarettes in the
country, which was 21.1% of the total consumption, is 0.48 billion cigarettes. Reduction in
the amounts of smuggled cigarettes can be explained with the overall decline in consumption
76
and the general European trends towards further reduction of the number of smuggled
cigarettes, as well as successful actions of law enforcement institutions. Historically, the
countries of origin of most cigarettes smuggled to Latvia were Belarus and Russia.
Respectively, the flow of smuggled cigarettes from Belarus in 2017 amounted to 343 million
cigarettes, or 66.7% of the overall volume of contraband, whereas cigarettes smuggled from
Russia accounted for 51 million pieces, or 10% of the total flow. 37 million cigarettes
consumed in Latvia in 2017 were counterfeit. The main reason for contraband lies in
considerable differences of cigarette prices. For instance, the average price of a pack of
cigarettes in Latvia in January 2018 was 3.03 EUR; in the meantime, its average price in
Belarus was just 43 cents, and in Russia – 1.39 EUR. The most popular brands of cigarettes
smuggled to Latvia are NZ, Premier, Winston and Kiss (LETA-TVNET, 2018).
2. Smoking restriction policy in Latvia
Data of the OECD National Health Report 2017 on Latvia show that a share of about
40% of the overall burden caused by diseases in Latvia is associated with various behavioural
risks, the main of which are smoking (11.5%), alcohol consumption (5.7%) and obesity (11%)
(OECD 2017). Even though the percentage of smokers in Latvia tends to reduce, it is still
above the EU average, indicating that the population of Latvia still lacks knowledge and idea
of the consequences of consumption of addictive substances.
In order to combat the global tobacco “epidemics”, the World Health Assembly of 2003
unanimously voted on the enactment of the World Health Organization's Framework
Convention on Tobacco Control (hereinafter – the Convention), which took effect on
February 27, 2005. The goal of this Convention is to safeguard the current and future
generations against the destructive medical, social, environmental and economic
consequences arising from the use of tobacco and the influence of tobacco smoke. The
Convention has already been ratified by 180 countries, including the European Union and its
Member States, which accounts for about 90% of the world's population. This is a legally
binding treaty that makes it incumbent upon the parties thereto to develop and implement a
number of control measures aimed at regulating marketing activities in the tobacco industry
and sales volumes, reduce demand for tobacco products and offer alternatives to agricultural
producers involved in tobacco farming and production (WHO, 2015). Latvia has ratified the
Framework Convention on Tobacco Control in 2004, and the Convention entered into force
on May 11, 2005.
In 2008, the WHO has implemented six evidence-based tobacco demand reduction
measures – the MPOWER package. The main measures suggested by the Convention to
reduce demand for tobacco are as follows: monitor the consumption of tobacco and the
preventive policies; protect people from tobacco smoke; offer assistance to those willing to
give up smoking; warn of the harm caused by tobacco consumption; impose restrictions on
tobacco product advertising, sales promotion and event sponsoring by the tobacco industry;
raise taxes applicable to tobacco products (WHO, 2008).
Tobacco production and consumption regulations in Latvia have been developed in
accordance with the regulatory framework of the European Union (EU). Tobacco
consumption restriction policy has become one of the core domains of public health in Latvia.
In November 2016, Latvia has commenced the implementation of the European Social Fund
project “Complex health promotion and disease prevention measures”. The goal of this
project is to improve the accessibility of health promotion and disease prevention services for
all inhabitants of Latvia, especially for those exposed to the risk of territorial, economic and
social exclusion, by implementing activities in the priority domains of healthcare at the
national scale (MH, 2017). The program is intended to include activities aimed at impeding
the spread of smoking, in particular, different informational and educational measures.
77
Restrictions on the use of tobacco products in public places has a positive effect on passive
smoking indices both at work and at home. In turn, active smokers are influenced to a lesser
extent: neither the annual increase of the excise tax, nor warning signs and informational
activities emphasizing the harm inflicted by the use of tobacco have not yet had any
considerable effect on the habits of regular smokers.
In 2017, Latvia has commenced the implementation of a pilot project aimed at
convincing smokers to give up the habit, which invited people from all over the country to
visit free supportive group seminars to help them quit smoking, that is, offered people free
help in giving up smoking at the national scale (SPKC, 2019).
From May 1019, Latvia adopts the Tobacco Product Traceability System, which is
going to allow tracing each stage of the life cycle of a tobacco product – from factory to
retail location. The Tobacco Product Traceability System, dubbed Track&Trace, is a single
unified system for the entire European Union, which allows tracing the flow of legal tobacco
products, thus enhancing the control capabilities of government supervisory institutions (SRS,
2019). In turn, the State JSC Latvian National Radio and Television Centre (LVRTC), in
pursuance of the Regulations of the Cabinet of Ministers No. 155 of April 9, 2019
“Regulations on the Tobacco Product Traceability System” and in observance of the
European Commission Implementing Regulation (EU) 2018/574, ensures the generation of
unique codes and issuance thereof to producers, sellers and importers (LVRTC, 2019).
The study also featured several expert interviews – surveys of healthcare professionals,
municipality leaders, social service managers, as well as educators and politicians. According
to expert findings, restricting the use of tobacco products through regulatory acts would be
effective if planned as a long-term program combined with regular and repeated public
information activities, health education and competence improvement in educational
institutions, as well as practical support opportunities for those willing to give up smoking.
3. Cost-benefit analysis
In monetary terms, the impact of tobacco consumption on the social and economic
development mostly manifests itself as the price paid by the society for the prevalence of
smoking within the population. Within the context of national economy, each inhabitant
invests a resource of a kind into the national economy, which is statistically measured as
average life earnings. Each lost productive year reduces a person's investment into the
national economy. Diseases and work incapacity caused by tobacco consumption are a
considerable burden for the national social and healthcare budget. Each additional year of an
inhabitant's life creates extra revenues and costs for the national economy in general.
Methodologically correct assessment of the impact of smoking is the most important step
towards the development of a reasonable smoking restriction and control policy in any
country. As stated by scientists P. Jha and F. J. Chaloupka, if all social costs would be
included in the purchase price of cigarettes, it would reimburse the society (population and
organisations) for losses caused by smoking (Jha & Chaloupka, 2000).
From the economic standpoint, active and passive smokers do not get any proceeds
from the use of tobacco. Revenues from the use of tobacco are reaped by the government,
increasing the budget proceeds from excise tax and value added tax payments.
As reported by the State Revenue Service, most of the excise tax proceeds from tobacco
products result from the sale of cigarettes. In 2018, excise tax proceeds from tobacco products
made up 20% of the total amount of excise tax (see Fig. 3) [SRS, 2018 a]. Amendments to the
Law on Excise Tax took effect on January 1, 2019, having increased the excise tax for
smoking tobacco, tobacco leaves and heating tobacco by 70 EUR per 1000 grams, and for
cigars and cigarillos – by 88 EUR per 1000 pieces. Excise tax rates for cigarettes are going to
increase from July 1, 2019 – the minimum tax rate per 1000 pieces is going to increase to
78
114.70 EUR, the specific, or fixed tax rate per 1000 pieces is going to reach the level of 78.70
EUR, whereas the percentage tax rate will remain at the level of 2017, that is, 20% of the
maximum retail price.
Figure 3. Excise tax revenue structure in Latvia in 2018, %
Source: developed by the authors based on the State Revenue Service data, 2018 a.
In practice, excise tax is an essential source for increasing the government budget
revenues. However, excise tax can be based on both fiscal aims and the public health policy
guidelines. Scientists studying social and economic processes ever more frequently come to
the conclusion that the purpose of excise tax is to reimburse the society for the negative
influence of externalities.
Origins of the assessment of economic influence of tobacco consumption can be found
in epidemiological studies on the influence of tobacco consumption on public health dating
back to the 1930s. In 1959, Jerome Cornfield has published an essential report, which became
a historical reference mark for the statistic assessment of habits (CORNFIELD et al., 1959).
In 1964, Cornfield’s work served as a basis for 29 case control studies and 7 cohort studies,
consolidated results of which were published by the US Surgeon General, offering clear
casual cohesion definitions, criteria and guidelines for cohesion assessment. Over the period
of 1982 to 1992, the extensive “Cancer Prevention Study” (hereinafter – CPSII) took place in
the USA, which featured follow-up and repeated surveys of over 1.2 million US smokers aged
30 and above for 10 years (US, 2010). Scientists have proved 36 diseases to be related to the
consumption of tobacco, including oncology diseases, respiratory diseases, cardiovascular
diseases, reproductive system disorder, etc. The major problem of economic impact
assessment is the absence of local histological studies on the prevalence of the
aforementioned diseases in the smoker population and the respective study results that would
provide an opportunity to measure the economic impact of tobacco consumption as well. In
2011, WHO has summarised the existing best practices in the calculation of smoking costs
and defined the potential goals of smoking cost calculation (Economics of Tobacco.
Assessment of the Economic Costs of Smoking, 2011):
measure smoking costs affecting the healthcare system and productivity of the
population;
obtain information and facts for the implementation of economic interventions, for
example, increased taxes and introduction of other financial means of smoking
restriction;
assess losses within the boundaries of smoking-related judicial proceedings;
79
provide data to support the planning of healthcare system within the boundaries of
implementation of the tobacco control policy;
inform government and municipal policymakers and legislators;
create an economic framework for the assessment of tobacco control programs (WHO,
2011).
In order to measure the effect caused by smoking precisely, one needs to know clearly
whether a specific fatality or case of work incapacity was caused by a smoking-related
disease. The smoking attributable fraction (hereinafter – SAF) is the central index determining
the part of any manifestation that can be attributed to smoking. The concept of SAF was
introduced in 1953 by Morton Levin from the Johns Hopkins School of Hygiene and Public
Health (Samet, 2016). Levin's SAF formula is based on two indices:
1) prevalence of the risk factor in the population;
2) relative risk of the development of disease in those subjected to the risk (i.e., smokers) as
compared to those not subjected to the risk (i.e., non-smokers).
WHO defines SAF as a weight (share, proportion) of healthcare services, healthcare
costs, the number of fatalities or other health outcome values that can be attributed to
smoking.
In the European Union, 655 000 active smokers die annually, 290 000 of whom are
aged between 35 and 69, which makes an average loss of 22 years of life. 285 000 smokers
die from various oncology diagnoses, including a death toll of 224 000 caused by pulmonary
cancer; 183 000 die from cardiovascular diseases, 113 000 die from respiratory tract
disorders, and 74 000 die from other diseases (Richard Peto et al., 2006).
Considering the existing global practice of the methodologies applied in other countries,
as well as the study of statistical data availability, the study featured the development of a
model for assessment of the impact of tobacco product consumption on the social and
economic development of Latvia.
Public study reviews and statistical data for 2014 were analysed: The study of habits
affecting the health of Latvian population (FINBALT); the disability assessment prime cost
data reported by the State Medical Commission for the Assessment of Health Condition and
Working Ability; the data on reimbursable medications provided by the National Health
Service; the data on the turnover of tobacco products and tax proceeds from the State Revenue
Service.
Data requests were sent to government institutions possessing information relevant to
the effects and costs of tobacco consumption for 2014: the National Health Service was
requested to provide data on patients who received inpatient and outpatient healthcare
services paid by the government (by diagnosis group, gender, age, dwelling type); on
transport costs (to/from healthcare service providers); the State Fire and Rescue Service – on
losses from fires; the Central Statistics Bureau – on the population of Latvia (by age, gender
and declared dwelling type); the Centre for Disease Prevention and Control – on the
potentially lost years of life (by diagnosis group, gender, age, dwelling type).
Revenue and cost data were summarised using the SPSS tool and MS Excel functions.
Performance of the cost-benefit analysis of smoking habits of the population involved:
1) an assumption that government measures for controlling smoking and supporting the
health of the population are intervention measures with a reference period of 15 years,
beginning from 2014;
2) determination of the government's benefits and costs resulting from the restriction of
smoking, regardless of the costs borne by the population;
3) formation of cash flow by means of summarising government revenues from trade in
tobacco products and costs incidental to government-funded medical services for smokers
and provision of medications within the reference period.
80
Excise tax revenues from tobacco products in 2014 totalled to 166.2 million EUR,
whereas the next years showed an increase of 7% per annum. Assuming that the further
revenue increase rates are going to slow down to 3%, the government may expect to collect
some 2.5 billion EUR (discounted value) into the budget over the next 15 years as a restriction
of manufacturing and trading in tobacco products.
An analysis of compensations paid by the government for the treatment of diseases
attributable to tobacco users has led to the inference that the total amount of compensations
for the treatment of malignant neoplasms, cardiovascular diseases and respiratory tract
diseases in 2014 was a little short of 10 million EUR. This amounts to about 1/4 of the total
smoker support costs borne by the government. The largest government expenses are
associated with providing healthcare services to smokers in smaller towns – 55 533 EUR per
1000 inhabitants. Government expenses incidental to the provision of healthcare services to
smokers in rural territories in 2014 were 27 337 EUR per 1000 inhabitants of these territories.
Smokers with diagnosed malignant neoplasm living in Riga sought government-paid
outpatient services 30% more frequently in 2014 than inpatient services. In general, smokers
living in Riga also use the government-paid healthcare services for cancer patients more
actively, spending 8 509 EUR per 1000 inhabitants of Riga. Direct costs not related to
healthcare paid by smokers at their own expense amount to 39% or 26.4 million EUR, but the
largest cost item is fire-inflicted losses eventually sustained as a result of smoking.
Calculation of the mean smoking attributable fraction (SAF) allows determining indirect costs
incidental to the loss of work capacity. The amount acquired by multiplying the number of
work incapacity (illness) days within a period by the mean daily remuneration and the mean
SAF is 41 million EUR a year, an amount that Latvian smokers could earn if they were not
sick due to smoking-induced diseases. Discounting of the lost revenues shows that a single
smoker, due to early death, fails to earn an average of 190 to 246 thousand EUR. General
analysis of the amount of indirect costs, which is at the average level of 55 million EUR, or
185 EUR per single smoker a year, leads to the inference that smokers’ unreceived earnings
make up a total of 0.23% of the Latvian GDP.
In order to determine the social and economic influence of tobacco consumption over a
15-year period, a cash flow was modelled with the following calculated revenue and cost
items integrated therein:
excise tax revenues from tobacco products (with the “+” sign);
direct costs (with the “-” sign);
indirect costs, including those caused by work incapacity and early death (with the “-”
sign).
The reference year was assumed to be 2014, in respect of which a summary of statistical
data required for the calculation is available. The forecast of excise tax earnings from tobacco
products relies on the analysis of previous years, with an anticipated increase by 5% and 3%
up to the 10th year (inclusive). By means of discounting, the current net revenue and cost
value of 1.5 billion EUR was obtained, reflecting the government revenue level as compared
to government costs incidental to restricting the consumption of tobacco and providing care
and support to smokers. Calculation of the cost-benefit parameter, obtained by dividing
discounted revenues by discounted costs, leads to the inference that revenues are 2.35 greater
than costs, which is indicative of the fact that smokers produce considerable income for the
national budget within the context of the existing regulatory framework and restrictions.
81
Findings
1. There are four conceptually different approaches in the global practice that governments
can take to influence the accessibility of tobacco: regulatory framework; manufacturers’
responsibility for the compliance of their products; Pigouvian tax; tradable permits for
distribution of tobacco products.
2. Tobacco consumption restriction policy has become one of the core domains of public
health in Latvia.
3. The economic effect of tobacco consumption first drew the attention of scientists in the
1930s, and 36 diseases have been proved to be associated with the consumption of
tobacco, including oncology diseases, respiratory diseases, cardiovascular diseases,
reproductive disorder, etc.
4. The cost-benefit analysis leads to the inference that revenues in Latvia are 2.35 greater
than costs, which is indicative of the fact that smokers produce considerable income for
the national budget within the context of the existing regulatory framework and
restrictions.
5. The diseases and work incapacity caused by the use of tobacco products are a
considerable burden for the government’s social and healthcare budget, and each
additional year lived by a person creates extra revenues and costs for the national
economy in general. Methodologically correct assessment of the impact of smoking is the
most important step towards the development of a reasonable smoking restriction and
control policy in any country.
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83
Kopsavilkums
Tabakas izstrādājumu lietošanas ekonomiskie aspekti
Pasaules Veselības organizācija norāda, ka tabakas lietošana pasaulē izraisa vairāk nekā 7 miljonus nāves
gadījumu gadā. Kaut arī smēķēšana ir tāda pati atkarība kā alkohola vai narkotisko vielu lietošana, tā neizraisa
tūlītējas sekas, bet ilgtermiņā var izraisīt nopietnus veselības traucējumiem, kas būtiski ietekmē dzīvildzi un
dzīves kvalitāti kā pašiem smēķētājiem, tā arī līdzcilvēkiem un rada nozīmīgus ekonomiskos zaudējumus valsts
tautsaimniecībai. Šajā pētījumā tiek izvērtētas tabakas izstrādājumu lietošanas ekonomiskā ietekme gan no
izdevumu, gan arī no ieguvumu puses. Lai gan Latvijā, atbilstoši ES normatīvo aktu prasībām, tiek izstrādāta un
ieviesta smēķēšanas ierobežošanas politika, tomēr Latvijas iedzīvotājiem vēl joprojām ir nepietiekams zināšanu
un izpratnes līmenis par atkarību izraisošo vielu lietošanas sekām. Pētījumā pielietotās metodes: aprakstošās un
salīdzinošās statistikas metode, korelācijas analīze un izmaksu ieguvumu analīze, kā arī ekspertu intervijas un
triangulācijas metode.
Galvenie pētījuma rezultāti: Aptuveni 40% no kopējā slimību radītā sloga Latvijā ir saistīti ar dažādiem
uzvedības riskiemun viens no galvenajiem ir smēķēšana (11,5%). Tabakas izstrādājumu lietošanas ierobežošana
pozitīvi ietekmē pasīvās smēķēšanas rādītājus, savukārt, aktīvie smēķētāji tiek mazāk ietekmēti. 2018. gadā
akcīzes nodokļa ieņēmumi no tabakas izstrādājumiem veidoja 20% no kopējās akcīzes nodokļa summas un par
8,86% pārsniedza 2017. gada rādītājus. Aprēķinot izmaksu-ieguvumu rādītāju, dalot diskontētos ieņēmumus ar
diskontētajām izmaksām, tika secināts, ka ieņēmumi 2,35 reizes pārsniedz izmaksas, kas liecina par to, ka esošā
regulējuma un ierobežojumu kontekstā smēķētāji veido būtiskus ieņēmumus valsts budžetā.
Atslēgas vārdi: tabakas izstrādājumu izplatība un ierobežošana, ekonomiskā ietekme.
Pезюме
Экономические аспекты употребления табака
По оценкам Всемирной организации здравоохранения, употребление табачных изделий является
причиной более 7 миллионов смертей в год. Хотя курение вызывает такую же зависимость, как
употребление алкоголя или наркотиков, оно не имеет немедленных последствий, в долгосрочной
перспективе может привести к серьезным проблемам со здоровьем, которые оказывают значительное
влияние на продолжительность и качество жизни курильщиков и других людей, и приводит к
значительным экономическим потерям для национальной экономики.
В этом исследовании рассматриваются экономические последствия употребления табачных изделий с
точки зрения затрат и выгод. Хотя Латвия разработала и внедрила политику отказа от курения в
соответствии с требованиями законодательства ЕС, латвийское население все еще недостаточно
осведомлено и не понимает последствия употребления веществ, вызывающих зависимость. Методы
исследования: метод описательной и сравнительной статистики, корреляционный анализ и анализ затрат
и выгод, а также метод экспертного интервью и триангуляции.
Основные результаты исследования: Приблизительно 40% общего бремени болезней в Латвии связано с
различными поведенческими рисками, и одним из основных является курение (11,5%). Ограничение
употребления табака положительно влияет на пассивное курение, в то время как активные курильщики
страдают меньше. В 2018 году поступления от акцизного налога от табачных изделий составили 20% от
общей суммы акцизного налога и превысили показатели 2017 года на 8,86%. При расчете соотношения
затрат и выгод путем деления дисконтированного дохода на дисконтированную стоимость был сделан
вывод о том, что выгоды в 2,35 раза превышает расходы, что указывает на то, что в контексте
существующего регулирования и ограничений курильщики генерируют значительные доходы в
государственном бюджете.
Ключевые слова: распространение и ограничение использования табачных изделий, экономические
эффекты.
84
AUTHORS
Givi Bedianashvili Dr.oec., Professor, European University, Georgia
e-mail: [email protected]
Elita Jermolajeva Dr.oec., Leading Researcher, Latvia University of Life Sciences and
Technologies (Latvia), Fellow Member of RSA (Regional Studies
Association), RSA Ambassador to Latvia, Head of Development
Department, Preili Municipality Council (Latvia)
e-mail: [email protected]
Nadežda Griškjāne Mg.oec., PhD student of Doctoral study programme “Economics”
Daugavpils University (Latvia)
e-mail: [email protected]
Anita Kokarevica Mg.oec., Lecturer, Rīga Stradiņš University (Latvia)
e-mail: [email protected]
Inese Kursite Bac.oec., Student of Master Studies, Daugavpils University (Latvia)
e-mail: [email protected]
Kristīna Mahareva PhD student of Doctoral study programme “Regional Economics and
Economic Policy”, Baltic International Academy PHd student of
Doctoral study programme
e-mail: [email protected]
Inna Stecenko Dr.oec., profesor, Baltic International aсademy (Latvia)
e-mail: [email protected]
Halina Shmarlouskaya Dr.hab.oec., Professor, Belarusian State Economic University
(Republic of Belarus)
e-mail: [email protected]
85
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Bibliography
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Петербургский государственный университет. Санкт-Петербург.
Articles in collections: Turner, R. H. (2010) A Comparative Content Analysis of Biographies. In: Øyen, E., ed. Comparative
Methodology: Theory and Practice in International Social Research. London, etc.: Sage Publications: 134–150. Vijeikis, J. (2015) Innovation and Cooperation Problems of Small and Medium-sized Businesses. In: Meņšikovs,
V. ed. Proceedings of the International scientific conferences of Faculty of social sciences of Daugavpils
University: the materials of the International scientific conference “Social sciences for regional development
2014” (17th–18th October, 2014). Daugavpils Universitātes Akadēmiskais apgāds “Saule”: 151–157.
Articles in magazines: Ābelīte, L., Skuja, I. (2014) Atsevišķu dzīvesvietu piesaistes un pilsētas iedzīvotāju kopības sajūtas aspektu
izpēte Zviedrijā, Somijā un Latvijā. Sociālo Zinātņu Vēstnesis, 2 (19): 68–83. Gonzalez-Val, R., Olmo, J. (2015) Growth in a Cross-section of Cities: Locaton, Increasing Returns or Random
Growth? Spatial Economic Analysis, 10 (2): 230–261. Хилькевич, А., Хилькевич, С., Штефенберга, Д. (2016) Территориальное распределение предприятий
сферы информационно-коммуниkационныx теxнологий в Латвии. Вестник Социальных Наук, 1(22): 28–
40.
Articles in newspapers: Strazdiņš, I. (2015) Matemātiķi pasaulē un Latvijā. Zinātnes Vēstnesis, 8. marts. Krūmiņa, I. (2016) Aktuālās tendences pasaules zinātnē. Zinātnes Vēstnesis, 11. aprīlis.
Materials from the Internet: Regions in the European Union. Nomenclature of territorial units for statistics NUTS 2010/EU-27. 2011 edition. [http://ec.europa.eu/eurostat/documents/3859598/5916917/KS-RA-11-011-EN.PDF (2015.14.12)]. Ziņojums par Latvijas tautsaimniecības attīstību (2016). Ekonomikas ministrija.
[https://www.em.gov.lv/files/tautsaimniecibas_attistiba/2016_jun.pdf/ (2016.20.09)].
Summary Paper should contain a summary of 1,200–1,500 characters, font size – 10, line spacing – 1.0. in Latvian and
Russian at the end of the paper. The summary reflects the essence, content and research results of the paper. It
should contain the problem statement, the aim, the main research methods used, the main results and findings of
the paper.
Kopsavilkums Latgales reģiona pilsētu attīstības tendenču prognozēšana
Latvijas pilsētu sistēmas mērogā – kritisks izvērtējums un vispārinājumi
(Teksts) ...................................................................................................................
Atslēgas vārdi: nozaru attīstības tendences, pilsētu sistēma.
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Резюме Прогнозы экономического развития городов Латгалии
в масштабе Латвийской городской системы – критическая оценка и обобщение
(Tekст) .....................................................................................................................
Ключевые слова: тенденции развития отрасли, городские системы.
Information about the author (-s): Name, Surname Academic degree, position, affiliation, country e-mail address
89
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Izdevējdarbības reģistr. apliecība Nr. 2-0197.
Iespiests DU Akadēmiskajā apgādā “Saule” —
Vienības iela 13, Daugavpils, LV–5401, Latvija.