BUSINESS - bslaboratory.net vol. 3 issue 1-2014.pdf · Mauro Sciarelli. Full Professor of Business...

BUSINESS SYSTEMS REVIEW ISSN 2280-3866

www.business-systems-review.org

Volume 3, Issue 1 January - June, 2014

JOURNAL SCOPE Business Systems Review (BSR- ISSN 2280-3866) is a peer reviewed, half-yearly journal,

published by the non-profit association Business Systems Laboratory. BSR publishes high level

and innovative theoretic, qualitative, quantitative and empirical contributions of researchers and

practitioners in the business systems field.

The journal aims to endow a multi-field approach with a special emphasis on the systemic

approach for business.

PUBLICATION FREQUENCY Six-monthly, published in June and December plus special issues.

COVERAGE The main topics covered in the journal may include, but not are limited to, the following topic

areas:

The main topics include, but not are limited to, the following topic areas:

• Systemic Approach in Business • Complex Systems Theory • Management Cybernetics •

Economic and Social Systems • Business Communication Systems • Systems Dynamics • Viable

Systems Approach • Innovation Systems • Financial Systems • Service Science • Sustainability •

Corporate Social Responsibility • Knowledge Management • Supply Chain Management •

Strategic Management • Environmental Business • Environmental Management • Marketing •

Consumer Behavior • Customer Satisfaction • Corporate Finance • Banking • Finance for SME •

e-Business • e-Learning • Business Process Management • Fuzzy Logic • Heterodox Economics •

Ethnography.

KEY JOURNAL AUDIENCES Academics, researchers, business consultants, business engineers, computer scientists,

management systemists, online libraries supplying students, academics and researchers.

KEY BENEFITS BSR is an important forum for the exchange of knowledge, addressing major areas of concern

and debate whilst highlighting future developments. The challenging and comprehensive nature

of systems science in business is reflected in the published articles which involve not only

theoretical and methodological-oriented studies but also in-depth discussions of their related

appliances and implementations.

PEER REVIEW The journal adopts a double-blind system for peer-review; both reviewers and authors’ identities

remain anonymous. The paper will be peer-reviewed by three experts: two reviewers from

outside and one associate editor from the journal. Our commitment is to complete the entire

review process within a maximum of three months since the submission. The acceptance rate in

2013 has been of about 25%.




INDEXING AND ABSTRACTING

value 2012: 0.497

value 2012: 5.54

ETHICAL CODE

The Business Systems Review (BSR) aims to choose and publish, through a double blind peer

review process, the highest quality research in business systems. In order to achieve this goal, the

whole peer review and publication process must be scrupulous and fair.

Journal standing depends greatly on the trust of all people involved in the process coming from

their acknowledgment of the fairness of the double blind peer review and publication process.

This trust can be enhanced by the implementation of a formal ethical code, with clear guidelines

for fair behavior. For these reasons, the BSR Ethical Code is intended to be a complete policy for

peer review and publication ethics in the Business Systems Review.

The Code depicts BSR's policies to guarantee the ethical conduct of all participants in the peer

review and publication process. BSR Authors, Editors and Reviewers are encouraged to read

these guidelines and address any questions or concerns to one of the BSR co-Editor in Chief.

For further details about BSR ethical code:

http://www.business-systems-review.org/BSR_ethical_code.htm

http://www.business-systems-review.org/BSR_ethical_code.htm




AUTHORS’ GUIDELINES

Submission of an article implies that the work described has not been published previously

(except in the form of an abstract or a conference proceeding), that it is not under consideration

for publication elsewhere, that its publication is approved by all authors and that, if accepted, will

not be published elsewhere in the same form, in English or in any other language, without the

consent of the Publisher.

The Editors reserve the right to edit or otherwise alter all contributions, but authors will receive

proofs for approval before publication.

Authors must check their manuscripts for possible violations of copyright law and obtain the

required permissions before submission.

Authors should be punctual with their manuscript revisions. If an Author cannot meet the

deadline given, he should contact the Editor to determine whether a longer time period or

withdrawal from the review process should be chosen.

Authors authorize the publisher to archive the article into databases and indexes, and permit the

publisher to apply DOI to the article.

All manuscripts should be prepared in MS-Word format, and submitted by e-mail to the editor in

chief. For further details please go to:

http://www.business-systems-review.org/BSR_authors_guidelines.htm

http://www.business-systems-review.org/BSR_authors_guidelines.htm




EDITOR IN CHIEF

GANDOLFO DOMINICI

e-mail: [email protected]

EDITORIAL ASSISTANT

FEDERICA PALUMBO


ASSOCIATE EDITORS

Dimitris Antoniadis. Lecturer in Project Management, University of West London (UK)

Gianpaolo Basile. Senior Lecturer of Marketing, University of Salerno (IT)

Michelle Bonera. Asst. Professor of Marketing, University of Brescia (IT)

Ockie Bosch. Prof. of Systems Design & Complexity Management, University of Adelaide (AU)

Fernando Buendia. Asst. Prof. of Business Administration. EGADE Business School (MX)

Nikhilesh Dholakia. Full Professor of Marketing, University of Rhode Island (US)

Primiano Di Nauta. Asst. Professor of Business Management, Univ. of Foggia (IT)

Nezihe Figen Ersoy. Associate Professor of Marketing, Anadolu University (TR)

Lucio Fuentelsaz. Full Professor of Strategy & Management, University of Zaragoza (ES)

Marco Galvagno. Asst. Professor of Marketing, University of Catania (IT)

Giuseppe Giordano. Associate Professor of Statistics, University of Salerno (IT)

Nastaran Haji Heydari. Asst. Prof. of e-Business, University of Tehran (IR)

José Rodolfo Hernandez Carrìon. Professor of Applied Economics, Univ. of Valencia (ES)

Giulio Maggiore. Asst. Professor of Business Management, Univ. Unitelma Sapienza (IT)

Ignacio Martinez de Lejarza. Professor of Applied Economics, University of Valencia (ES)

Piero Mella. Full Prof. of Business Administration, University of Pavia (IT)

Pierre McDonagh. Full Prof. of Marketing, School of Management, University of Bath (UK)

Mahito Okura. Associate Professor of Risk Manag. & Insurance, Nagasaki University (JP)

Nacima Ourahmoune. Associate Professor of Marketing, Reims Manag. School (FR)

Luca Pazzi. Ass. Professor of Information Systems, Univ. Modena & Reggio Emilia (IT)

Igor Perko. Asst. Prof. of Business Informatics, University of Maribor (SI)

Vincenzo Pisano. Asst. Professor of Business Management, University of Catania (IT)

Enzo Scannella. Asst. Prof. of Banking and Finance, University of Palermo (IT)

John Schouten. Full Professor of Marketing, Aalto University School of Economics (FI)

Mauro Sciarelli. Full Professor of Business Management, University “Federico II” Naples (IT)

Giancarlo Scozzese. Asst. Prof. of Business Management, “Univ. Stranieri”, Perugia (IT)

Josip Stepanić. Ass. Professor of Social Thermodynamics, University of Zagreb (HR)

mailto:[email protected]




Eleuterio Vallelado. Professor of Finance, University of Valladolid (ES)

Ivona Vrdoljak Raguž. Associate Professor of Management, University of Dubrovnik (HR)

Maurice Yolles. Emeritus Professor of Organisational Science, Liverpool John Moores

University (UK)

TABLE OF CONTENTS

pp.1-17

José Rodolfo Hernández-Carrión, David B. Ruiz Hall

A NEED FOR A PARADIGM SHIFT IN THE SPANISH BANKING SECTOR? THE

EVOLUTION FROM REGIONAL TO MULTINATIONAL BANKS IN SPAIN.

pp. 18-31

Giancarlo Scozzese, Roberto Bruni.

THE EFFECT OF THE COUNTRY OF ORIGIN OF EUROPEAN COMPANIES IN

THE CONTEXT OF YOUNG ARGENTINIANS.

pp. 32-47

Rosa Lombardi, Simone Manfredi, Fabio Nappo.

THIRD PARTY OWNERSHIP IN THE FIELD OF PROFESSIONAL FOOTBALL: A

CRITICAL PERSPECTIVE.

pp. 48-65 Michal Pružinský, Bohuslava Mihalčová.

FINANCIAL LITERACY OF SLOVAK UNIVERSITIES’ STUDENTS.

pp. 66-89

Luca Carrubbo, Roberto Bruni, Emanuela Antonucci.

ANALYZING PLACE BOUNDARIES USING THE SERVICE SCIENCE

PARADIGM


Business Systems Review

ISSN: 2280-3866 Volume 3, Issue 1

January-June 2014

This work is licensed under the Creative Commons Attribution 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by/3

1

A Need for a Paradigm Shift in the Spanish

Banking Sector? The Evolution from

Regional to Multinational Banks in Spain

José Rodolfo Hernández-Carrión

Associate Professor of Applied Economics. Faculty of Economics, University of Valencia, Spain.

e-mail: [email protected]. Corresponding author

David B. Ruiz Hall

Attorney-at-Law

GB Consultants, Finance, Tax & Legal, GDF Consultants, Valencia, Spain.

Submitted: May 30, 2013 / Accepted: February 20, 2014 / Published online: February 22, 2014.

DOI: 10.7350/BSR.D01.2014 – URL: http://dx.medra.org/10.7350/BSR.D01.2014

ABSTRACT

Since the approval of Spain’s 2012 National Budget on March 30, 2012, some doubts and

controversies have added up to many fears in the private sector regarding the measures and

stimuli that the Spanish government was going to undertake. At the same time, this situation was

in some measure aggravated by the financial backlog of many small and medium companies,

which are and will continue, in the following years to be completely unable to comply with their

financial requirements.

In line with Boronat Ombuena’s (2009a, 2009b, 2010, 2012) requirements in his new approach

to finance and private sector liaisons, the purpose of this paper is to analyze the recent years of

the credit sector in Spain as well as its direct and mid-term effects that its mergers and

acquisitions (M&A) have contributed up to date, and will still produce in the near future. We will

take a closer look at the evolution of the banking sector in Spain from 1995 to 2012 through a

historically-based methodology, compiling and synthesizing the existing financial and risk

market information and analyzing its evolution.

We shall observe that in a single year, the total number of savings banks in Spain decreased from

45 to only 15 entities and that the risks the financial system took over these last few years were

not equally distributed across the entities, resulting in an advanced foreclosure of the regional

savings banks and in a market-share growth for the commercial banking entities.

This process has resulted in creating larger entities and, in some cases, a vacuum of regional and

local credit entities that in the mid-long term will eventually end up in a representative loss on

credit availability. These circumstances call into question the need for a paradigm change and

most importantly, new approaches to solve the new challenges that can result in the financial

fluidity of the system and the eventual recovery of the economic structure.

Keywords: Spanish banking sector, savings banks, financial crisis, tax adjustments convergence,

mergers and acquisitions, M&A, Spain.

Business Systems Review, ISSN: 2280-3866

Volume 3, Issue 1

January - June 2014


2

1. INTRODUCTION: THE CREDIT SYSTEM EVOLUTION IN SPAIN

The early years of this decade have become a challenge for the already-used economic models

and the common uses of the financial markets. We have been able to see old market strategies fail

and old banking procedures be completely inadequate for the ever-changing needs of the new

paradigm and requirements of the private business sector. However, these challenges are the

result of changes that have been taking place from late 1995.

Since the end of the last decade, Spain has slowly been changing its economic model, specifically

modifying the banking procedures and credit requirements of core capital in order to restructure

its own market, industries and budgetary assignments as a whole.

Whereas in other countries such changes had been undertaken many years in advance, we could

still see big financial players in the Spanish banking system which had other legal strategies that

seem to be unknown to other countries. We talk about significantly different legal structures and

different credit-concerning procedures.

In Spain, since the late eighteenth century, the earlier Italian model of the fifteenth century of the

impounding houses of pious character started to grow (although history would take us back to the

year 1834, to the Spanish town of Jerez de la Frontera (Cadiz, Spain), with the “Sacred and royal

impounding house of the souls of the purgatory of Madrid”). Later on, after more than a century

of existence, such structures started to evolve in the mid-nineteenth century to the actual German

Sparkasse-model-like based entities, that is, a public banking system working as banks with local

and regional interests and centred in a non-profit and regional compromised entities with large

reinvestment and public service programs.

Nevertheless, such models started to modify their original commitment, which was only to lend

small loans for specific personal purposes, not competing with larger and more professionalized

banks for the business market and commercial loans to the large private sector investment groups.

These entities were nominated Savings Banks (Savings Bank or Caja, in Spanish, or Caixa, in

Catalan language equivalent) and were specialized in accepting savings deposits and granting

loans.

These changes ended up in the opening of their own regional enclosed interests in favour of a

nationwide expansion that started mainly after 1992 with three entities ahead of the rest, the

Madrid-based Caja Madrid, the Barcelona-based Caixa Catalunya and the Leon-based Caja

Castilla-León, among many others that we shall later expose and analyse. The nation-wide

assault began with the creation of hundreds of micro-offices in every corner of large and later

medium-sized cities. This expansion model wanted to export the regional and proximity-based

model of the original entities while giving them a larger impact in the economy as a whole.

On the other side of the spectrum we could find a more-efficient and more professionalized

banking system which entities were growing or had been restructuring themselves for more than

a decade, creating large banking conglomerates that we know of today, such as the BBVA (Banco

de Bilbao Vizcaya Argentaria) (the merging result of the historical banks in Spain such as the

Bank of Bilbao, Bank of Vizcaya, and also the Argentaria Group, which itself was the nationwide

group of the industrial investment state banks such as the Bank of External Commerce -BEX-,

Bank of local Credit -BC- and many others, also we found the best known BSCH (Banco de

Santander Central Hispano), as well as the natural evolution from the following three private

entities: Bank of Santander, Central Bank, and Hispano Bank. This “Central Bank” or “Banco

Central” was a private entity with this name, a small commercial bank significantly different

from the important concept associated with the Central Bank of a country, and in the case of


Volume 3, Issue 1

January - June 2014


3

Spain it is officially named Banco de España or Central Bank of Spain (BDE). In the new context

of the European Union, the role of the central bank of the Spanish economy has changed

significantly in the last years (Jaime & Hernández-Carrión, 2012).

The end result of this evolution has been that in almost fifteen years, by the beginning of the

twentieth century, the banking map in Spain had been completely overhauled. There was no real

difference in products or goals between savings and commercial banks and by then, the credit

mass had grown to a spectacular rate, nearly one hundred thousand new employees had been

hired in new offices in all Spain (adding also the new foreign banks that opened in the expansion

period), resulting in an office or ATM machine in every corner of every city or town.

2. CHRONOLOGICAL EVOLUTION FOR THE 1995-2012 PERIOD

In the early years of the twentieth century, very few mergers had taken place of any strategic

importance at the national or regional level. We could only start to see small mergers and small

acquisitions by other entities, however, except for the Cajamar conglomerate, there was no entity

big enough to modify the credit access or fluency in any region by itself. This would later change

in regions like the Valencian Community, which, as the foremost example of the national

intervention and bank nationalisation, would eventually lose the three larger credit institutions in

its soil, the Bank of Valencia, the CAM (Savings bank from Alicante and Murcia, previously

known as Caja de Ahorros de Alicante y Murcia) and Bancaja (former Savings bank from the

provinces of Valencia region, or Caja de Ahorros de Valencia, Castellón y Alicante).

However, if we continue to analyse this evolution, we can clearly see that after 2009, large

conglomerates were created, ending in the actual chain of events.

We shall not endeavour in analysing the internal pros, cons or even wrongdoings in every-single

entity, however, in recent studies (Climent Serrano, 2012), there has been a reasonable consensus

that there have been many causes that have led to the actual financial crisis.Firstly, those of

internal origin:

i. Capacity excess

ii. Non-levered housing investment

iii. Excessive and disproportionate growth

iv. Large levered operations based on non-profitable operations

v. Doubtful credits ending in excessive depreciations and amortizations affecting the banking

system cash flow.

vi. Benefit depletion ending in insolvency situations.

Furthermore, there have also been external causes to all this change and late developments, such

as:

i. Negative GDP evolution of the EU countries in general and Spain in particular.

ii. Unemployment rate well above the 20% figure during the process, continuously readjusting

the demand to a lower local optimum giving the industrial offer curve little to no time to

readjust its means, prices or qualities, ending suddenly in many cases in a structural excess

in production.

iii. State value inversion demise


Volume 3, Issue 1

January - June 2014


4

iv. Regulation system modification that subsequently changed most of the financial variables

in the model.

Following 2009, several mergers started to really take place and change the regional and national

financial landscape, regional savings banks started either to purchase banks due to the legal

framework then in place. It was impossible to do it the other way round, since savings banks had

no legal core or legal force and therefore were outside the mercantile legislation -due to their

particular history- whereas banks were -and still are- specialized companies that function in the

financial market.

Figure 1. Chronological Evolution of the M&A operations in the Spanish banking system (First

stage from 1995 to 2009)

2.1 Spanish banking and financial system evolution in 2009

03.29.2009 - CCM (Caja Castilla La Mancha) is shut down and intervened after the merger with

the Andalusian Unicaja savings bank.

05.26.2009 - The then Spanish President, Mr. Rodriguez Zapatero (of the Socialist Party PSOE),

starts the Fund for Orderly Bank Restructuring FROB or Fondo de Reestructuración Ordenada

Chronological Evolution

Cajasur - (Caja de Ahorros and Monte de Piedad de Córdoba)

CaixaNova - (Caja de Ahorros de Ourense, Vigo and Pontevedra)

CajaNavarra - (Caja de Ahorros de Navarra and Caja de Ahorros Municipal de Pamplona)

Nueva Caja Rural Almería y Málaga - (Cajas Rurales de Almería and Málaga )

Caja de Ahorros de Carlet integrates into Bancaja

Multicaja - (Cajas Rurales de Huesca y Zaragoza )

Cajasol - (Caja de Ahorros de Huelva y Sevilla and la C.A Provincial San Fernando de Sevilla y Jerez)

Caja Rioja - (Caja de Ahorros Inmaculada and la Caja insular de Ahorros de Canarias) - FAIL

Caja Castilla la Mancha integrates into Cajastur

Grupo Cooperativo Cajamar - (Cajamar Caja Rural, Caja Campo and Caja Rural de Casinos)

1995

1999

2000

2001

2002

2007

2009


Volume 3, Issue 1

January - June 2014


5

Bancaria) which aims to manage the restructuring and resolution of credit institutions and

strengthen the resources of these in the integration processes.

These reforms invested 7,550 million Euros through the FROB, although total recapitalization of

entities was 13,389 million Euros, compared to 15,152 million Euros initially planned.

This process was done via the legal framework provided by the Royal Decree-law 9/2009 (RD

Law 9/2009 or Law Fund for Orderly Bank Restructuring), and Royal Decree Law 11/2010

(Banks Act) and Royal Decree Law 2/2011 (Act Recapitalization).

13.08.2009 - The Bank of Andalusia (Banco de Andalucía) delisted in the Spanish stock market,

after successfully culminating the merger of the subsidiary Andalusian by the Banco Popular.

03.11.2009 - The Bank of Spain (Central Bank of the country, officially nominated Banco de

España belonging to the Governing Council of the European Central Bank or ECB) approved the

integration of CCM in Cajastur.

12.11.2009 - The Bank of Spain authorized the establishment of Cajamar Cooperative Group

(Cajamar, Caja Rural, Caja Campo and Caja Rural de Casinos) as the first merger under the SIP

formula made in Spain.


03.25.2010 - Unnim savings bank receives aid from FROB passing to be in full control.

05.11.2010 - The Andalusian savings banks Unicaja and Caja de Jaen constitute a new entity

after the signing of the merger deed.

05.22.2010 - Cajasur is then intervened after the merger with Unicaja is rejected and asks for help

for an amount over 500 million Euros to FROB.

07.01.2010 - The two major mergers of Catalan banks, Catalunya Caixa (Caixa Catalunya,

Tarragona and Manresa) and Unnim (integrated by the savings banks from Manlleu, Sabadell and

Terrassa) started their operational activity.

The governing councils of Caixa Rural Cajamar and Balearic Caixa agree to merge.

07.16.2010 - Cajasur is awarded to the Basque savings bank BBK (Bilbao Bizkaia Kutxa).

09.18.2010 - Shareholders' meetings of Banco Sabadell and Banco Guipuzcoano agree their

integration in the first merger of any kind of Spanish banking for more than a decade. Banco

Sabadell acquires Banco Guipuzcoano.

09.21.2010 - CCM savings bank becomes a commercial Bank (participated by 75% by the

Cajastur Group and by 25% by the CCM Foundation).

01.10.2010 - Caja España Duero savings bank, as a result of Caja Duero and Caja España,

officially merge.


Volume 3, Issue 1

January - June 2014


6

04.10.2010 - The National Competition Commission approved the merger of Caja Guadalajara

by Cajasol, which supposed the first interregional integration of savings banks in Spain.

12.01.2010 - Novacaixagalicia, the resulting savings bank from the merger of Caixa Galicia and

Caixanova started operating after its registration in the commercial register and became a bank

by September 14, 2011. Novacaixagalicia was operated by 93% by the FROB and is pending

auction or tender for adjudication. It has received aid worth of 2,465 million euros.

12.20.2010 - The presidents of Cajamar and Caixa de Balears formalise Rural notarized the deed

of merger of both entities.

12.22.2010 - Grupo Banco Mare Nostrum (the resulting integration of Caja Murcia, Caja

Granada, Sa Nostra, Caixa Penedès and a SIP) obtains commercial banking operations

authorisation.


01.01.2011 - La Caixa savings bank completes the merger of Caixa Girona.

01.01.2011 – The year 2011 marks the beginning of operations of the new group of Finance and

Savings Bank called Bankia. The SIP of Caja Madrid, Bancaja, Caixa Laietana, Caja de Avila,

Caja Insular de Canarias, Caja Segovia and Caja Rioja, whose new trademark is Bankia.

01.03.2011 - BBK Bank starts operating and trading.

01.26.2011 - Banca Civica (the SIP of Caja Navarra, Caja Canarias, Caja Burgos and Cajasol)

starts with operational capacity to handle new customers.

04.06.2011 - Banco Base savings bank (cold fusion provided between the Mediterranean-CAM

savings bank, Cajastur and other savings banks from Extremadura and Cantabria) settled their

project, while acquiring the CAM bank tab, finally intervened on 22 July of the same year.

06.29.2011 - Cajastur, CCM Bank, Caja Extremadura and Caja Cantabria assemblies approve the

transfer of financial assets to the new bank (subsequently called Liberbank), created under the

SIP formula.

07.22.2011 - Mediterranean Savings Bank (CAM) is intervened after failing integration with

Cajastur, Caja Cantabria and Caja Extremadura in the Bank Base. The Alicante-based bank was

forced to ask 2,800 million euros to the FROB. The Bank of Spain now has a credit line of EUR

3,000 million for its feasibility and was capitalized with 2,800 million euros, so that the state

controls between 80 and 85% of its capital.

09.30.2011 - CatalunyaCaixa passes to the FROB which now controls 90% of its capital in the

state after injecting 1,719 million Euros.


Volume 3, Issue 1

January - June 2014


7

07.10.2011 - Banco Popular communicates to the National Securities Market Value Commission

(CNMV) its claim to control all of the Banco Pastor through a process of absorption.

20.10.2011 - General meetings of the three Basque savings banks, BBK, Vital Kutxa and approve

their integration to create Kutxabank bank, which will begin operating on January 2, 2012.

11.21.2011 Bank of SpainintervenesBanco de Valencia after the forced resignation of its

operators and injects 1.000 million Euros through FROB to ensure its viability and 2.000 million

to ensure its liquidity.

11.23.2011 - The Caja3 savings bank reports to the CNMV the segregation of business of Caja

Inmaculada (CAI), Caja Círculo de Burgos and Caja Badajoz for their organization.

12.07.2011 - The Bank of Spain informs that the Mediterranean Savings Bank (CAM) has been

bought in an open public auction by Banco Sabadell.


02.03.2012 - The new president in office, Mr. Mariano Rajoy, from the Conservative Party

(Partido Popular or PP), holds his first reform with the approval of the Royal Decree Law for the

reorganization of the financial system, which required financial institutions to increase by 50,000

million Euros its provisions in order to withstand the complete risk of their real estate assets and

pushing some of the already existing entities to new mergers and acquisitions.

02.29.2012 - The Ibercaja savings bank and Caja3 boards agree to initiate the process of merging

in their banking business.

07.03.2012 - The Bank of Spain decrees that Unnim (merger of Caixa Sabadell, Terrassa and

Manlleu) is won by open public auction by the BBVA (Banco de Bilbao Vizcaya Argentaria) for

one euro and helps Deposit Guarantee Fund in the amount of 953 million euros.

03.30.2012 - The boards of Unicaja and Caja España-Duero (CEISS) approve the integration

and complete absorbing process of the Andalusian entity (Unicaja) by the Castile and Leon

region savings bank.

04.18.2012 - The boards of Caixabank and Banca Civica (Caja Navarra, Caja Canarias, Caja

Burgos and Cajasol) approved their proposed merger.

05.09.2012 - The Minister of Economy and Competitiveness, Luis de Guindos (PP), announces

the nationalization of 100% of Financial and Savings Bank, the Bankia bank matrix, which will

be controlled by 45% of the latter company. Bankia, by this time, becomes the biggest former

savings bank intervention carried to date.A key figure in this development is the formerPresident

of Bankia, Rodrigo Rato. Rato was Minister of the Economy in Spain from 1996 to 2004,

Managing Director of the International Monetary Fund (IMF) from 2004 to 2007, who assumed

the presidency of the main savings bank in the Bankia merger (Caja Madrid), and resigned on


Volume 3, Issue 1

January - June 2014


8

May 7, 2012. By July 4th, 2012, Rato had been charged with accounting irregularities, along

with thirty other former members of the board of directors of Bankia.

05.11.2012 - The then new Spanish government takes another step in this restructuring of banks

with a new Royal Decree Law on the reorganization and sale of real estate assets in the financial

sector, with the aim of cleaning up and protecting the balance sheets of banks to promote new

risk-taking operations.

This new reform also includes the creation of "bad banks" in order to group toxic assets and to

require higher provisions for entities to ensure their viability.

It also raises the general provision of the loan portfolio and real estate assets of the banking

unproblematic (123,000 million Euros), which will mean around 30,000 million Euros of new

banknotes that will have to be made before December 31 of that year.

These write downs join the 54,000 million Euros and made after the approval of Royal Decree

Law February financial reform, so that the total sanitation made will be placed near the 84,000

million Euros.

05.29.2012 - The Ibercaja savings bank, Caja3 savings bank and Liberbank boards, approve the

protocol integration to create the seventh largest Spanish financial group.

06.08.2012 - The Spanish government announced a third round of write downs pending to be

analysed about the sector.

07.10.2012 - The Mediterranean savings Bank-CAM is merged with Sabadell bank and

disappears after 137 years of existence. Banco Sabadell acquires Banco CAM.

11.27.2012 - Caixabank purchases Banco de Valencia from the former Bankia Group.

As shown in the timelines, the end result of all these years of changing models could not have

been more catastrophic, the fourth largest financial entity nationalized (Bankia, only behind

BSCH, BBVA and La Caixa savings bank), the foreclosure of the savings banks social system in

favour of a solely commercial banking system. In other words, the model that had taken more

than two centuries to build, took less than a decade and a half to ground it.

After the merger, Bankia was initially owned by a holding company named Banco Financiero y

de Ahorros (BFA), and the seven banks controlled BFA. The most toxic assets from the banks

were transferred to this new bank BFA, which obtained 4.5 billion euros from the Spanish

government rescue fund FROB in exchange for preference shares, so the resulting new entity is

now BFA-Bankia.

A large amount of literature has been published only acknowledging the abovementioned causes

(Caja Meri et al., 2008; Pérez 2011; Pons 2011) for example have contributed in several

fundamental analyses of the matter at hand),of this financial development, yet, as we will see in

our paper, this has not only been the sole reason, but, among many others, show the lack of

general knowledge that general public had of the financial market in Spain.


Volume 3, Issue 1

January - June 2014


9

Figure 2. Chronological Evolution of the M&A operations in the Spanish banking system

(Second stage from 2010 to 2012).

3. THE RISK UNDERTAKEN IN SOME FINANCIAL AND REAL ESTATE ASSETS

AND THEIR BANKING EFFECTS IN SPAIN IN 2008-2011

Although many circumstances and factors (both internal and external), can be related to the actual

evolution of the banking system in Spain, one that is sometimes forgotten or set aside is the

amount of risk that mostly savings banks, contrary to their own financial model and contrary to

their own business procedure (in most cases as a consequence from their regional-political

control and supervision) ended up by absorbing operations that after some time resulted in total

investment failure and a severe and long-term harmful effect on their equity.

If we were to analyse the total assets of each bank (that we shall represent by the size of the

circle) and measure the TIER 1 mass on the Y axis, while at the same time, on the Xaxis we

could in contrast measure the doubtful risks ratios and rankings back in 2008, this was the

graph1 the Spanish financial sector was representing:

Chronological EvolutionCaja España de Inversiones, Salamanca y Soria - (Caja España and Caja Duero )

Banca Cívica - (Caja Navarra, Caja Canarias and Caja de Burgos)

CajaSol - (Merges with Caja Guadalajara )

Unicaja - (Marges with Caja de Jaén )

Catalunya Caixa - (Cajas Rurales de Cataluña, Manresa and Tarragona )

Caja España Duero - (Caja España and Caja Duero)

Caja3 - (Caja Inmaculada, Caja Círculo y Caja Badajoz)

NovaCaixaGalicia - (Caixanova and Caixa Galicia)

Unnim - (Cajas Rurales de Sabadell, Terrasa and Manlleu )

Fusion between Cajasur and Unicaja - (BE takes over Cajasur ) - FAIL

La Caixa absorbs Caja Girona

Bankia – (Caja Madrid, Bancaja, Caja Laietana, Caja Canaria, Caja Segovia y Caja Rioja)

Sabadell-CAM – (Banco Sabadell absorbs Caja de Ahorros del Mediterráneo CAM)

Banco Mare Nostrum – (Caja Murcia, Caja Penedés, Sa Nostra, Caja Granada)

Liberbank – (Cajastur, Caja Castilla La Mancha, Caja Cantabria, Caja Extremadura)

Kutxabank – (BBK, Cajasur, Kutxa, Banco Vital)

Bankia is nationalized

La Caixa is fused with Banca CívicaLiberbank is fused with Caja3

2010

2011

2012


Volume 3, Issue 1

January - June 2014


10

Figure 3. Tier 1 Ratio of the Spanish Banking Sector in 2008.

In this case, we can clearly see that minor (small to mid-sized financial players such as CCM,

Caixa Catalunya or Caja Madrid) were taking a larger-than average risk on their daily

operations, were as by their TIER 1 ratio (established2 as the core measure of a bank's financial

strength from a regulator's point of view and composed of equity capital and published reserves

from post-tax retained earnings) they were not extremely more funded than other entities nor

were their assets larger than others with the same investment and doubtful risk operations

amount.

From 2008 and by 2009 we were observing a tendency not to reduce risk, but to stretch further on

more risky operations by compensating on the core capital values. (Y axis Tier 1; X axis,

doubtful and risk operations).

Figure 4. Tier 1 Ratio of the Spanish Banking Sector in 2009 with CCM.

0

5

10

15

20

25

0,00 2,00 4,00 6,00 8,00 10,00 12,00 14,00 16,00 18,00

Co

re T

ier

1

Doubtful Risk Ratio

CCM

Banco March

Caja MadridBBK

Caixa CatalunyaBankinter

BBVA

Santander

Banco Sabadell

Banco Popular

Caja España

Caja Penedés

Banesto

Ibercaja


Volume 3, Issue 1

January - June 2014


11

Then again, in 2009, CCM statistically shows a far larger Doubtful Risk Ratio, and therefore, we

had to recreate the graph without CCM, the result is shown below:

Figure 5. Tier 1 Ratio of the Spanish Banking Sector in 2009 without CCM.

By 2010 (below) with many M&A operations already undertaken, the overall risk was slightly

reduced, although we could clearly see that two entities, Caja España-Duero and CAM were out

of the scale in risk terms.

Figure 6. Tier 1 Ratio of the Spanish Banking Sector in 2010.

Also, by this time, we could see some market trends, such as the smaller risk tendencies by some

major operators, such as BSCH or even by smaller ones (in comparison) such as BBK and Banca

March (or Banco March). By this time, we can also clearly see the next to be out of trend as

Banco de Valencia and Cajasol.

0

5

10

15

20

25

0,00 1,00 2,00 3,00 4,00 5,00 6,00 7,00

Co

re T

ier 1

Doubtful Risk Ratio

Banco March

Caja MadridBBK

Caixa CatalunyaBankinter

BBVASantander

Banco Sabadell

Banco Popular

Caja EspañaCaja Penedés

La Caixa

IbercajaBanco Valencia

Bancaja

Caixa Sabadell

Caja Murcia

0

5

10

15

20

25

30

0,00 2,00 4,00 6,00 8,00 10,00 12,00

Co

re T

ier 1

Doubtful Risk Ratio

Caja España- DueroCAM

Caja Sol

Banco Valencia

BBK Banco March

Bankinter Caja España- DueroCAM

Caja Sol

Banco Valencia

BBK Banco March

Bankinter

BBVA

SantanderCCM

Ibercaja

La Caixa

Banco Sabadell y Guipuzcoano

Banco PopularCaixa Galicia

Caixa CatalunyaCaja Madrid


Volume 3, Issue 1

January - June 2014


12

In 2011, the market is completely polarised as we can see in the graph below (Y axis Tier 1, X

axis, doubtful and risk operations):

Figure 7. Tier 1 Ratio of the Spanish Banking Sector in 2011 with CAM.

However, the then CAM and Banca March inclusion in the graph distorts the analysis of the

group, in which case we opted to eliminate such entity, resulting as follows:

Figure 8. Tier 1 Ratio of the Spanish Banking Sector in 2011 without CAM.

Finally, in not more than three years, we can clearly conclude that the risk that had already been

taken by 2008 by several entities (specially the then existing savings banks), was one of the clear

and main reasons for the latter demise. Also, this explicitly means that all M&A processes taken

in the 2008-2011 period were utterly insufficient for the reduction to significant levels of all the

risk in the system and, therefore, were only prolonging the problem and were not the solution of

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

0 5 10 15 20 25

Co

re T

ier

1

Doubful Risk Ratio

Banco March

CAMUnimm

Santander

Banco Popular

BBVA

BankinterIbercaja

Bankia

Caja 3 Catalunya Caixa

Banca Cívica

Banco ValenciaNovacaixa Galicia

La Caixa

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

0 1 2 3 4 5 6 7 8 9 10

Core

Tie

r 1

Doubtful Risk Ratio

Banco March

Kutxa Bank

UnimmCatalunya Caixa

Banca CívicaBankia

Caja 3

Novacaixa GaliciaBanco Valencia

Caixa Pollença

SantanderBanesto

Banco Popular

Caixa OntinyentIbercaja

Grupo BBK Bank Cajasur

UnicajaLa Caixa

BBVA


Volume 3, Issue 1

January - June 2014


13

all the financial problems that the new commercial model used by mostly old and insufficiently

regulated savings banks had approached and developed.

4. MERGERS AND ACQUISITIONS (M&A) PROCESSES AND OLIVER-

WYMAN’S REPORT ON SPANISH BANK’S ASSETS

By September 20123, Olive-Wyman’s report, on request of the EU Council to the Government of

Spain, was published.The report contained Oliver Wyman’s conclusions from the bottom-up

stress testing analysis undertaken for the Recapitalization and Re-structuring of the Banking

Sector of the Banco de España and the Ministerio de Economía y Competitividad. The objective

of this work was to assess the resilience of the Spanish banking system and its ability to

withstand a severe adverse stress of deteriorating macroeconomic and market conditions, and to

estimate the capital that each individual bank would require in the event of such an adverse

scenario.

Such report was based around the top-down stress-testing exercise conducted in June 2012, in

which the bottom-up analysis covered fourteen banking groups representing approximately 90%

of the total domestic credit of the Spanish financial system. The scope of asset coverage also

remained in the report the same as in the top down exercise and included the domestic lending

books, excluding other assets, such as foreign assets, fixed income and equity portfolios and

sovereign borrowing.

The base and adverse macroeconomic scenarios were also maintained as specified by the

Strategic Coordination Committee, with an adverse case implying a 6.5% cumulative GDP drop,

unemployment reaching 27.2% and additional drops in house and land price indices of 25% and

60% respectively, for the 3 year period from 2012 to 2014. Therefore, it presented a base

macroeconomic situation (considered likely) and another extremely adverse (considered very

unlikely), both defined for 2012-2014 period.

These capital requirements were justified by the relationship between the loss-absorbency and the

actual institutions’ total losses. These were expressed in terms of the weighty assets by degree of

risk owned by each entity.

Having said that, the additional capital requirements of the Spanish banking system, of December

31, 2011, according to the report amounted to 59,300 million Euros when the integration

processes ongoing and deferred tax assets weren’t included. If they were to be considered, this

figure drops to 53,745 million given the ongoing M&A operations tax modifications.

While the Oliver-Wyman’s report does mention the end result of the M&A operations as stated, it

didn’t analyse the background of all of them4. Since they have been part of the problem, the

solution or both, we consider it to be of the utmost importance not only to analyse all of the most

important ones, but also to synthesize the final results and effects of all of them.

5. CONCLUSIONS

The private sector credit availability and state tax demand have changed abruptly in these last few

years, and to date, signs of an internal crisis have been constantly appearing, both in Spain and in

the Valencian Community. The credit in Spain as a whole is following a trend of sharp correction

contractions due to the sum of two factors. First, due to exogenous factors, such as restricting


Volume 3, Issue 1

January - June 2014


14

international liquidity resulting from the international crisis, which are affecting the uptake of

external resources. Second, by endogenous factors, resulting from the contraction of the domestic

market (such as tax increases) and strong positions of financial institutions in the construction

and domestic sectors. This turn of events of the last few years has resulted in a downturn, with

negative values which minimum reached in October 2010, with a variation of -3.8%, the credit

liquidity in the system.

If we look closely at the financial credit availability and absorption in the marketin the 2008-2011

period, credit cooperatives are the only type of entity with positive values, all being stable at

around 1%, while banks had shown negative values until the summer of 2010, with variation

which evolves positively, reaching the value of 4.86% in December 2010. Finally, due to the

heavier credit crunch, the savings banks have negative credit values through the period ranging

from -0.71% to -3.78%.

Also in the same period, we are able to appreciate the great variation in the granted credit by

savings banks, from those that had higher positive values in the first half of 2008, to become

those with a higher decline in credit in the second half of 2010 (38.545 million Euros compared

to -29.769 million Euros). With regard to banks, the values recovery has seen positive values in

2010 after the fall semester of the variation in credit suffered in 2009. Finally, the credit

cooperatives have shown its stable and positive trend in the three years, but with absolute values

much lower than the banks and savings banks.

Therefore, we must conclude that all financial institutions have reduced their new credit

concession, they have closed all financial means to the SMEs, and have only been there for

precise refinancing procedures. However, those with only restructuring-debt operation and never

implying the most urgent requirements, were to sustain and develop the industry by lending more

financial aid, injected via the EU as financial loans to the Spanish banking sector, and through the

forced restructuring of several failed entities.

Such changes and market evolutions have collided with the persistent crisis that has hit southern

Europe and most noticeably, Spain. Also, within Spain, many regions have had severe cuts in

their public spending against all Keynesian models, yet, the Valencian Community has endured

even more changes and cuts than other regions not only in Spain but also in Europe.

These changes have been the cause of the actual financial crisis, internal and external to the

system, especially important, have been the changes made in several tax structures and in the

revenue-making-process for some industrial sectors.They have had a direct effect on the change

in paradigm (adaptation of Jánossy’s 1971 H. model), while existing for the last fifty years, has

been in extensive and intensive use for the past decade.

To this extent, during 2012, the Ibex 35 index lost almost five per cent of its value (-4.7%), a far

lower evolution than the DJ Stoxx Banks (+23.1%) or the DJ Stoxx 50 (+8.8%). While the real

economy is failing to grow, the new born Asset Management Company from the Bank

Restructuring (henceforth, SAREB), a private company established under Law 9/2012 of 14

November as part of the process of restructuring and consolidation of the Spanish financial

system, is attempting to maximize the value of assets that the restructuring of the banking

systems has left out as dubious and high-risk. This new company has its capital provided by

private entities (55%) and by the Fund for Orderly Bank Restructuring (FROB) as a minority

(45%). Its sole purpose to hold and manage directly or indirectly the administration, acquisition

and disposal of assets to be transferred to the banks, established by the Royal Decree-Law

24/2012, of 31st August, to restructure banks, that are majority owned by the FROB or deemed


Volume 3, Issue 1

January - June 2014


15

by the Bank of Spain to require the opening of a restructuring or resolution of under Law 9/2012.

The decision by the Bank of Spain is taken after independent assessment of capital needs and

asset quality of the Spanish financial system, conducted under the Memorandum of

understanding signed between Spanish and European authorities on July 20, 2012. The first case

included BFA-Bankia, Catalunya Bank, Banco Gallego Novagalicia Bank and Banco de

Valencia, and the second case, consisted of BMN, Liberbank, Caja3 and CEISS.

Further exacerbating this macroeconomic and financial breakdown resulting in the present system

credit-crunch, the two main sectors that thrive in the Valencian Community, the industrial sector

and the tourist sector, specially this latter one, have been losing their main strengths. They have

increased their weaknesses due to new countries offering large competitive leisure and tourist

packages with an even more competitive currency.

On the international level, stock markets around the world prepare for one of the best quarters of

the past 40 years within the Q2 of 2013, with those of the U.S., UK and Japan in the lead,

specially, regarding equity improvement in various emerging markets and in the U.S. However,

the local capabilities of the SME’s growth factor in the Valencian Community are still limited to

credit access and availability.

Although in the future we shall be able to quantify the financial constraints that end up affecting

the Valencian Community, we are already able to see that the deep economic crisis in which we

find ourselves has resulted in a worrying situation for the increasing loss of homes for many

families who are in serious difficulties in meeting their obligations to return the debt incurred by

the purchase of their home. And yet, this is just the tip of the iceberg, as currently there are about

500,000 million Euros of mortgage bonds in Spain as well as Spanish mortgage securitization

funds distributed worldwide. Notwithstanding, many of these titles serve as collateral in the

Eurosystem lending operations to our financial institutions, which has become the key funding

instrument.

Therefore, what will happen to the regulation affecting the warranty (mortgages) of those

securities issued could result in a loss of attractiveness of these values and, consequently, a

further obstacle to the development of not only the Spanish mortgage market, and subsequently,

reducing the chances of restructuring the financial banks and their debts and liabilities.

This risk does not only revolve around the already existing situation, it also implies that any

future growth is compromised by other variables, where the mortgage risk is increasingly high

and the defaults could increase significantly in the coming months, since any change in the

mortgage laws should also consider the effects of that risk. The mortgage default in the third

quarter of 2012 was around the 3.4%, well below the general rate of the banking debtor’s rate of

11.38%, but it is expected that this percentage will rise as unemployment, according to recent

studies, will not diminish at least until 2014.

Finally, we must conclude that the risks that the financial system has taken over these last few

years were not equally distributed across the entities, resulting in an advanced foreclosure of the

regional savings banks and in a market-share growth for the commercial banking entities. This

process has resulted in creating larger entities and in some cases, exponentially, such as in the

Valencian Community. Moreover, this has created a vacuum of regional and local credit entities

that in the mid- to long-term will eventually end up in a representative loss on credit availability.

When added up with the private and domestic sectors, furthermore increased by the

unemployment rate and the regional and country government indebtedness over these last few

years, this regional situation reflects the needfor a paradigm shift and most importantly, new


Volume 3, Issue 1

January - June 2014


16

approaches that can result, both nationally and regionally, in the fluidity of the financial system

and the eventual recovery of the economy.

REFERENCES

Bilbao-Vizcaya-Argentaria Bank Research (2012). Valencian Community situation. Madrid:

Studies service BBVA.

Boronat Ombuena, G. J. (2009a). The relationships between the banking system and the private

sector: A new approach I. Estrategia Financiera, 265 (October): 44–57. Madrid: Wolkers-

Kluwer.

Boronat Ombuena, G. J. (2009b). The relationships between the banking system and the private

sector: A new approach II. Estrategia Financiera, 266 (November): 29–43. Madrid: Wolkers-

Kluwer.

Boronat Ombuena, G. J. (2010). Negotiation, risk, costs and finance: The relations with the

finance sector. Estrategia Financiera, 273(June): 14–29. Madrid: Wolkers-Kluwer.

Boronat Ombuena, G. J. (2012). Thirty years of economic and financial strategy. Estrategia

Financiera, 300(December): 20–32. Madrid: Wolkers-Kluwer.

Caja Meri, P., de Miguel, E., de Miguel, B. (2008). The industrial and Valencia Community

Services. Separata RACV 83: 31–48. Valencia: RACV.

Federal Reserve of Chicago (1994). Modern Money Mechanics, 6–17. Retrieved 01/01/2012

from: http://www.rayservers.com/images/ModernMoneyMechanics.pdf

Graell Rojas, J., Bertran Codina, S. (2010). El plan de viabilidad (The viability plan). Barcelona:

Profit.

Jaime, V., Hernández-Carrión, J. R. (2012). La política monetaria de la Unión Europea. In

Colomer Viadel, A. (Ed.). Un nuevo rapto de Europa. Las encrucijadas del Tratado de

Lisboa, 205–231. Valencia: Hathi Estudio Creativo.

Jánossy, F. (1971). The End of the Economic Miracle: Appearance and Reality in Economic

Development. White Plains, N.Y.: International Arts and Sciences Press.

Pérez, F. (2011). It is unlikely that domestic demand, consumption and investment will push

forward soon. Valencia: In business terms.

Pons, L. (2011). The economics of crisis, 2009-2011. Valencia: Official College of Economists of

Valencia-COEV.

Santandreu Martinez, E. (2009). Manual for the management of customer credit. Deusto: Deusto.

Spanish Association of Accounting and Business Administration-AECA (2008). International

regulatory framework valuation, 24–43. Madrid: Ormag.


Volume 3, Issue 1

January - June 2014


17

Endnotes 1 This initial study was published by the financial newspaper ”Expansión” back in 2009 with data from Central Bank

of Spain of the year before and extracting data from the Spanish Market and Values Commission (CNMV, the

Comisión Nacional del Mercado de Valores is the regulatory body of the Spanish Stock Market) following graphs

are of the same source, own elaboration.

2 International Convergence of Capital Measurement and Capital Standards, “Basel Capital Accord I”, July 1988

(http://www.federalreserve.gov/pubs/bulletin/2003/0903lead.pdf & http://www.bis.org/publ/bcbsc111.pdf).

3 On September 28th 2012 the Central bank of Spain (BDE) released a note about the report, however, the full report

was disclosed a couple of days later.

4 Sources: Central bank of Spain (BDE), Spanish Market and Values Commission (CNMV), Oliver-Wyman’s report.

Own elaboration.




January-June 2014


18

The Effect of the Country of Origin of

European Companies in the Context of

Young Argentinians

Giancarlo Scozzese Ph.D., Università per Stranieri di Perugia, Dept. Comparate Cultures, Perugia (Italy)


Roberto Bruni

Ph.D., University of Cassino and Southern Lazio, Dept. Economics and Law, Cassino (Italy)


Submitted: January 10, 2014 / Accepted: March 07, 2014 / Published online: March 09, 2014.


ABSTRACT

In this paper, we present the results of a field analysis and a literature review of the country-of-

origin effect. The field analysis involved over 300 questionnaires completed by Argentinian

youths, aged 18–30, living in the city of Buenos Aires. The aim of the study was to analyze and

verify the hypothesis that, following the major Argentinian economic crisis, European companies

can find business opportunities in the market of young Argentinians (ages 18–30) with medium-

high levels of income, because the concept of “place of origin” can contribute to the purchase of

European products, mainly through two particular intangible elements: the strong desire of

people to escape from the crisis condition, and the traditional affections between people in

Argentina and Europe.

The study reveals positive correlations between the place-of-origin effect, the connections of a

particular cluster of consumers with Europe, and the opportunities of European companies to

gain business in Argentina following the economic crisis.

Keywords: country of origin effect, place of origin effect, economic crisis, affection, business

opportunities.

1. INTRODUCTION

This work focuses on a particular aspect of the country-of-origin (COO) effect called the “place-

of-origin effect”; the main hypothesis to be verified concerns the relationship between young

Argentinian consumers (ages18–30) with good feelings about European countries and the desire

of such consumers to free themselves from the economic difficulties caused by the crisis of the

late 2000s and to buy European products; as a matter of fact, this hypothesis has suggested a

multicue approach, as it is not only the country of origin of the firm that represents a stimulus (or


Volume 3, Issue 1

January - June 2014


19

deterrent) to the purchase act, but also the series of consumer features that, integrating each other,

support the product choice. In this sense, Peter & Jolibert (1995) state that, within single-cue

studies, the place-of-origin effect influences 30% of the evaluation of the product quality, while

in multicue studies, this influence is reduced to 16%; if we refer to purchase intent, the effect

decreases from 19% to 3%.

This work represents an in-depth analysis of research that has been carried out in Argentina

(Chionne & Scozzese, 2012), and which has shown the strong positive connections that

Argentinians still have with Europe, and has (among other things) highlighted the economic

conditions of development that justify further investment into Argentina on the part of European

firms.

2. POSITIONING

The COO theme and the several evolutionary paths of specific studies on place of origin (POO)

can be located among the research and reference literature that concerns international marketing.

In fact, they represent search items useful for the knowledge of countries, of consumers, and

particularly of specific relational connections between countries, products, and markets.

Firms that develop international relations of any kind must consider economic environment

conditions and the socio cultural layouts of the target countries; in many cases, they must also

compare their country of origin with the target. This is the case because the image of the country

system—especially upon its first presentation to the target nation—is the outcome of several

consumer experiences, elements of prejudice, emotions, and stereotypes, all of which may limit

or encourage the potential success of firms in foreign countries (Bartlett & Ghoshal, 1989;

Alonand McKee, 1999; Valdani, Guerini & Bertoli, 2000).

Several authors have dealt with the COO theme on the international level; in 1963, Dichter

mentioned an effect similar to the COO concerning the American inclination to purchase

Germans cars, which were perceived as quality products. With Schooler (1965), the concept of

COO was properly analyzed and, in particular, the inclination was observed of the consumer to

attribute a distinction to certain “made in” labels, even when referring to two otherwise identical

products. Nagashima (1970) was one of the earliest authors to develop a model, still used with

the appropriate variables, for surveys and the research into the COO theme; between the 1960s

and the 1970s, this author, together with Schooler, also examined the differences in perception

between more and less developed countries (Nagashima 1970, Schooler 1971). The contribution

of Obermuller (1983), in the form of a literature review, stressed that the significant differences

and the variety of analyzed countries, along with the subjects and the referred products, represent

some of the weak spots of the research into the COO. One of the earliest works in the literature

review is from 1982, in which Bolkes and Nes divide the then-extant studies into multicue and

single-cue research. The single-cue approaches are research based on single “hints” (cues) used

for the subject in studying the phenomenon.

In 1987, Shimp and Sharma produced an important contribution in identifying 17 items that are

useful for knowledge of the ethnocentric1 nature of human beings, and the associated effects on

consumer behavior during the purchase selection path.

Usunier (2006) offers a summary regarding the state-of-the-art of COO literature and, covering

the period from Schooler to Shim and Sharma (2005), splits the research into different phases.

From this review emerge the lines of research on which the present paper is focused: in


Volume 3, Issue 1

January - June 2014


20

particular, this work relates the COO to the intentions of consumption; among the main authors

referred to are Peterson & Jolibert (1995) and Verlegh & Stenkamp (1999).

3. METHODOLOGY

The aim of this research is to verify the effect of the mix of features existing among the analyzed

subjects concerning the intention to purchase products from firms with “European” place of

origin, independent of the brand of the represented company and the product type. We chose to

understand that, when a European product is purchased by an Argentinian youth, it is (regardless

of brand) preferred to an Argentinian product; we also consider whether this choice may emerge

from the mix of factors we highlighted previously. The features under analysis are the desire to

escape from the economic crisis condition, the purchasers’ affection for Europe, and the

European firms’ reputations.

In order to verify the hypothesis, some other hypotheses have been formulated and verified

through the literature contributions and the data already available from ad hoc research: for the

collection of primary data that can be referred to the specific search terms of this work, a

questionnaire addressed to Argentinian young people between the ages of 18 and 30 living in

Buenos Aires has been used; this age interval has been chosen, as it represents a cluster of young

people that have personally experienced the crisis of 2001, and which have culturally and socially

developed within a national mood that has had to organize the path to economic recovery in

Argentina.

Buenos Aires Province has a population of 15, 594, 428, while the autonomous city of Buenos

Aires has 2,891,082 inhabitants2. The total number of young people between the ages of 18 and

30 in Argentina is 8,525,865; in Buenos Aires Province, there are 3,272,177 people in this age

group, while in the autonomous city of Buenos Aires, there are 818,044—about the 25% of the

total amount. A random sample of 200 people was selected from these.

The 2001 economic crisis has left a difficult situation and, after more than ten years, the

economic situation has been complicated by the effects of the 2007 global economic crisis, which

has directly involved the generation that is considered in this work—even though the country is

presently entering a phase of consumption revolution; in many cases, the younger generations are

more and more attached to new technology, to digital hyper connectivity, and to spread of trends

and information (also on a commercial level); they thus communicate quickly in space and time.

Modernity and the incentive to innovation have spread throughout the population, encouraging

the progression to a new economic and social system.

Simultaneously, although Argentina is an independent country with its own national culture,

European references and the direct connections between Europe and the older generations

endure; the feeling of belonging and the affectionate relationships with the nations of origin of

many families persevere, as do the traditions and images of certain European countries.

3.1 Questionnaire analysis

The questionnaire, in addition to covering basic information on the subjects (age, gender, place of

birth, education, and occupation), requests data on income levels and any personal links that may

exist with Europe (e.g., if the subject or the subject’s parents were born in Europe).Such elements

help to determine the connections of the subject with Europe; additionally, so as to record

indirect and affective connections with the European continent, some questions have been added


Volume 3, Issue 1

January - June 2014


21

concerning whether the respondent has visited Europe. Such visits may contribute to creating an

incentive towards European products (or enhancing their appeal) in the subjects.

Some of the multiple-choice questions explore the perception of European countries on the part

of the subjects, together with their perceptions of European products, their technological

reliability, and the value attributed to them. We focused in particular on determining whether

subjects were willing to pay more for European products; this last contributes to our knowledge

of the subject’s ability to escape from the crisis condition, and provides some reflection points on

the perception of European firms and the value of their products.

In attempting to verify the knowledge and reputation of European Countries on the part of the

questionnaire respondents, some questions have been formulated with reference to a certain

group of countries and their Europemembership, the perception of their quality of life, and the

technological reliability of their products. In attempting to determine the intent of purchasing

European products—despite their higher price than local products—we asked some questions

concerning the ability of the respondents, in percentage terms, to spend more on such products,

and on their level of affection for European products.

4. SEARCH QUERY, INITIAL HYPOTHESIS, AND LITERATURE REFERENCE

The research query asks what effects result from the mix of different features observed in the

Argentinian youth population. In the past, each feature has been analyzed in the COO literature,

and we report here three hypotheses and the literature they derive from.

Specifically, Hp1 and Hp2 refer to the COO literature, while Hp3 concerns consumer behavior:

the three hypotheses, together with the questionnaire data, define elements useful in answering

the research query.

Hp1: The images of the countries and the geographical areas influence the purchase of products

from these territories;

Hp2: There are affective elements that influence the choice of products from certain countries;

Hp3: The desire to escape from the economically negative condition incentivizes the purchase of

products that have a higher price and level of quality.

The first hypothesis (Hp1) is a standard search query for COO; as a matter of fact, it is also

extended to all the other interpretations of studies on the impact of the reputation, the image, and,

in general, the value transferred from countries to the products or services and their firms.

The literature stresses that, when we are dealing with COO, we are mainly referring to a country;

some authors have also begun to study territories or origin, or even the industrial district of

origin (Guerini & Uslenghi 2006). Independent of geographical boundaries, some authors have

analyzed the relevance of regional areas to consumer influence (Ittersum, Candel & Meulenberg,

2003), or of certain very prominent cities (Lentz, Holzmuller & Schirmann, 2006). Other authors,

such as Andehn and Berg (2011), state that the “country of origin concept will be replaced by the

place of origin (POO)”, which can develop in the consumer’s mind a series of emotions and

images that, in turn, may reduce the impact (both positive and negative) of each country’s

positioning and can multiply the valorization process of the whole territorial area: the place-of-

origin effect also attributes, from a theoretical point of view, the consequences of the country-of-


Volume 3, Issue 1

January - June 2014


22

origin effect to broad areas, such continents or aggregations of countries—whether recognized or

not, from the administrative point view3 — on an international level.

The emotional impact of the product’s origin or, in some cases, of the origin of the producing (or

supplying) firm, falls off with the duration of the firm’s presence within the analyzed market,

since, in some cases, the presence of a firm in a foreign territory can become permanent. This

results in the involvement of several generations of customers, who at some point being to be

familiar with the firm’s products, and interiorize them within the distribution offer of their

country.

During the evaluation phase of the firms entering new countries, which takes the form of the

initial contact between the companies and the destination country, consumer choice is

progressively less and less determined by the product’s origin. According to the study of Verlegh

and Steenkamp (1999), the importance of the COO effect on consumer behavior changes

depending on the moment of the purchase decision process of the consumer. The importance of

the COO effect decreases as soon as we have the transition from the qualitative perception of the

product to the real purchase intention; as a matter of fact, the purchase intention is influenced by

several variables (price, warranty, available income, product placement, etc.), and these variables

can lessen the COO effect on the consumer at the moment of purchase choice at a certain selling

point, in the case of consumer goods or shopping. This can be less influential on the choice of

“problematic” goods or, in some cases, on the selection of the banner, selling point, or brand

when the subject is making a choice on the basis of personal sensations deriving from the COO.

Hp1 is verified from several contributions of the literature.

Hp2: There are affective elements that influence the choice of products from certain countries.

Inevitability, the study of COO, in all its variation, takes under consideration the analysis of the

existing relations that may develop over time in respect to the affective components, and that

which also evolve between the individual subjects and the countries; the subjects may be directly

involved in a positive relation with a country for various reasons which can add together and,

sometimes, overcome some difficulties existing firms, products, and consumers. The consumer

who is involved in a positive feeling toward a country may even be led by the strong

encouragement of this positive feeling to find “justifications” when the product or service does

not work.

In general, the country-of-origin effect depends on the purchaser’s characteristics, and seems to

be higher for end consumers than for industrial purchasers (Liefeld, 1993; Peterson & Jolibert,

1995; Verlegh & Steenkamp, 1999); in particular, Verlegh & Steenkamp (1999) focus on the

importance acquired by the affective and normative components: in their work, they assert that

the country of origin must not be seen as a cognitive variable purely linked to product quality, but

should be evaluated together with other factors, such as emotions, identity, social status, pride,

and autobiographical memories of the consumer. Moreover, the effect is related to demographic

(Bilkey & Nes, 1982) and cultural variables (Gurhan-Canli & Maheswaran, 2000; Laroche,

Papadopoulos, Heslop & Bergeron, 2003).

Orbemiller and Spangenberg (1989) analyzed consumer behavior by referring to the three main

interacting components: the cognitive, the affective, and the normative sphere. Concerning the

cognitive component, the image of the country of origin is assimilated at the beginning of the

process of perceiving the product’s quality. If a particular country is considered to be reliable,


Volume 3, Issue 1

January - June 2014


23

safe, and strong, then the products from this country will also be considered reliable, safe, and

strong.

In this way, if the consumer does not know the product or the produced, he or she will choose the

most reliable product simply by referring to the positioning of the country in his or her mind. Han

(1989) has deepened these considerations by breaking up the generated effects into two kinds; the

result is a halo-construct effect when the consumer has never experienced products coming from

a certain country (and by consequence, the perceptions of the products are strongly restricted to

the country of origin perception that the customer has), while a synthesis effect (a summary

construct) is generated when the consumer experiences the products coming from that country,

and its perception strengthens the considerations of the product in a precautionary way (at a

positive or negative level). The normative component indicates a sort of ideological purchase

decision connected to certainty and to the sharing of political, economic, social, and cultural

themes. For example, a consumer could purchase products coming from a specific country simply

because he identifies with the values of that country—or with its economic, political, or social

assets—and wants to support its economy.

In the literature, there are several studies focusing on the behavior of the patriotic (Han, 1988)

and ethnocentric (Brodowsky, 1998; Balabanis & Diamantopoulos, 2004) consumer; these

researchers have discovered that consumers have a tendency to prefer national products over

foreign ones. According to Watson and Wright (2000), this inclination can also lead to the quality

of the national products being overrated, and that of foreign products being underrated; our

opinion is that this kind of result may be subjected to some variations as a consequence of the

period in which the survey is carried out and of the political and economic circumstances. It is

clear that the basic ethnocentric tendency leads foreign firms to reflect on the real utilization of

the country of origin when they do not have sufficient data to know the COO value in the market

of the country where the brand, product, or service is conceived. The literature in general, as well

as specific studies, states that there is a possibility of considering in a relevant way the affective

components that exist in the product-choice process; the second hypothesis (Hp2) is thus verified.

Hp3: The desire to escape from the economically negative condition incentivizes the purchase of

products that have a higher price and level of quality.

The third hypothesis is supported in both the COO literature and in various economic studies.

When subjects move from a condition of reduced economic capacity to a higher spending

capacity, they are induced to buy products or services of higher quality that are generally more

expensive. The literature on consumer behavior indicates that, in several studies, changes in

lifestyle inevitably generate changes in consumption; in particular transitory periods of life, they

can be connected to important changes in consumer behavior in general (Andreasen, 1984; Metha

& Belk, 1991; Price & Curasi, 1996). Generally, when COO cases are studied, there is an

inclination to consider products that satisfy needs other than basic needs. Because (with some

exceptions) people who buy products that satisfy the basic needs pay attention to the brand or to

the geographical location of the firm in only a marginal way; In the main, they tend to buy

products produced in their own country or, at most, to choose cheap foreign products.

On the contrary, when goods or services are more expensive and “problematic” (as in the case of

cars, middle–high level products, expensive services, jewelry, and so on) the consumer might

undertake the choice in a more deliberate way. In many such cases, consumers also tend to better

reflect on the purchase because the product may express contents and values that go beyond the


Volume 3, Issue 1

January - June 2014


24

simple usage function, and which represent a “basket of features” simultaneously satisfying

different needs of the consumer.

The literature on country of origin points out that the category of the product determines the

connection between the purchasing behavior and the country of origin (Kaynak & Cavusgil,

1983): with products aimed at end consumers, the country of origin has greater power when

products sell at a higher price (Liefeld, 1993; Lascu & Manrai, 1998).The hypothesis is, in this

way, supported by the literature. This study tends to highlight the fact that these hypotheses may

particularly be found in the age and income ranges analyzed in Argentina, and especially in

Buenos Aires Province.

5. RESULTS

On the basis of the analyzed population — 818,044 people in the age range 18–30 living in the

City of Buenos Aires — more than 300 questionnaires were processed by extracting the analyzed

elements using a casual sampling design: some questionnaires were administered in person with

the respondent, others were sent through Survey Monkey, through e-mail, or through viral

communication on social network websites. The support of students of Buenos Aires University

has been very important. The questionnaire, developed on the basis of the proposal made by

Nagashima (1970) and methods from the literature, has two parts: an introduction section and a

special section. The introduction collects data on the socio demographic overview and relations

with Europe (if any); the last two questions connect with the special section: in particular,

questions 7 and 8 collect the data to be used in the second part of this research.

240 questionnaires were filled in, of which about 14% lack at least one field. The sample consists

of 61% men and 39% women. A majority of respondents fall into the 22–25 age group, though

the 26–30 group represents 31% and the 18–21 constitutes 29%; In fact, the sample seems to be

very homogeneous over the age range.

The percentage of subjects with an education level equal to or higher than high school is

72%;Over all, 87% are students and 4% workers, though 63% have an annual income equal to or

lower than 30,000 US dollars; 21% have incomes between $15,001 and $30,000.

Familial connections with Europe appear in the 24% of respondents who were born in a European

Country; 35% have visited Europe. In our opinion, this factor is very important, as the literature

points out that the presence of consumers within the European countries encourages, in some

cases, the desire to purchase European products—especially in the case of consumers who pay

particular attention to European specialties.

The second part of the questionnaire, the special section, contains 20 questions that examine in

depth the relationship between the respondent and Europe, its products, and the appeal that such

products exercise on them. Questions 17 and 18 collect information on the subjects’ ability to pay

more just to obtain European products, by comparing the price of analogous national products.

Question 10 has been conceived to examine the perception of the Europe as a political union of

nations. The outcome has been positive, as all the countries were recognized as belonging to a

unique area which is, in some way, represented as a unit. This contributes to giving an overview

of Europe and its products as the outcome of a collective effort of a territory that often is

considered only for the individual qualities and specialties of its component countries, which are

often not very cohesive.


Volume 3, Issue 1

January - June 2014


25

Table 1. Questionnaire: introduction section

1 Age of respondents

1.1 18–21 29%

1.2 22–25 42%

1.3 26–30 31%

1.4 No answer 8%

2 Gender

2.1 Male 61%

2.2 Female 39%

3 Country of Birth

3.1 Europe 14%

3.2 Argentina 43%

3.3 Another country 39%

3.4 No answer 4%

4 Education:

4.1 Primary school 7%

4.2 Secondary school 14%

4.3 High school 28%

4.4 Primary degree 41%

4.5 Postgraduate (PhD., Specialization,...) 3%

4.6 No answer 7%

5 Occupation

5.1 Student 87%

5.2 Working 4%

5.3 No answer 9%

6 Marital status

6.1 Single 66%

6.2 Married 7%

6.3 Divorced 0

6.4 No answer 27%

7 Annual gross income

7.1 Below 15,000 US dollars 42%

7.2 15,001–30,000 USdollars 21%

7.3 Above 30,001 US dollars 3%

7.4 no answer 33%

8 Were your parents born in a Europe country?

8.1 Yes 24%

8.2 No 53%

8.3 No answer 23%

9 Have you ever been in Europe?

9.1 Yes 36%

9.2 No 64%

9.3 No answer 16%


Volume 3, Issue 1

January - June 2014


26

Table 2. Questionnaire: special section.

Questions Answers No

answer

10

Are the following countries part of the European

Union: France, Germany, Italy, Spain, Portugal,

Great Britain, Ireland, Sweden, Finland, and

Norway?

Yes

96%

No

0

4%

11

“European Union countries enjoy a high quality of

life (welfare, pollution, culture, etc.).” Express your

agreement with this statement on the following

scale: 1 = disagree, 2 = partially agree, 3 = agree, 4 =

strongly agree.

1

11%

2

26%

3

56%

4

3%

4%

12

“European Union countries enjoy good economic

conditions.”Express your agreement with this

statement on the following scale: 1 = disagree, 2 =

partially agree, 3 = agree, 4 = strongly agree.

1

17%

2

48%

3

23%

4

12% -

13 Have you ever purchased European Union products? Yes

69%

No

31% -

14

What is your opinion of the quality of European

Union products (technology level, design, etc.)?

Express your evaluation on the following scale: 1 =

low, 2 = medium, 3 = high, 4 = extremely high.

1

11%

2

30%

3

33%

4

26% -

15

“European Union products are appealing and

fashionable.” Do you agree with this statement?

Express your agreement with this statement on the

following scale: 1 = disagree, 2 = partially agree, 3 =

agree, 4 = strongly agree.

1

6%

2

21%

3

33%

4

36%

4%

16

Compared with domestic products with the same

characteristics, do you think European

Unionproducts are more expensive?

Yes

71%

No

23%

6%

17

“Formy own satisfaction, I amwilling to pay 30% to

50% more than the price of the same domestic

product in order to buy a European product.”




1

16%

2

34%

3

29%

4

16%

5%

18

“Formy own satisfaction, I am willing to pay 50% to

100% more than the price of the same domestic

product in order to buy a European product.”




1

27%

2

31%

3

22%

4

11%

9%

19

“I love to have European products.”Express your

agreement with this statement on the following

scale: 1 = disagree, 2 = partially agree, 3 = agree, 4 =

strongly agree.

1

21%

2

27%

3

34%

4

13%

5%


Volume 3, Issue 1

January - June 2014


27

Earlier, we showed that the literature verifies hypotheses Hp1, Hp2,andHp3. Now, summing up,

we can state that there are some relations between the image of the countries and the influence

(positive or negative) on the purchase of products coming from these countries; in the same way,

there are some other relations between the affective components found in some products, firms,

and territories which affect the choice of certain products made by foreign consumers. Finally, in

order to define the search query of this work, we sought some conditions that would lead to a

purchase aimed at personal fulfillment and escape from the negative economic situation.

The literature has extensively dealt with the role of the image of the country on the COO effect,

recognizing the relation of a consumer’s purchase behavior, ideas, and beliefs with certain

nations, or more broadly, with territories identified as a unique entity—Europe, in our case. The

results of this work verify the existence of a correlation between the image (stereotype) of the

country (in this case identified with the most representative nations which, in the common

unconscious, are seen as Europe’s components4) and the behavior of the consumers towards the

products of firms that in some ways can be said to have a European place of origin. Certainly,

there are still many doubts about the perception of Europe as a unique reality and as United States

of Europe. This can be seen, among other places, in the questions of the special section where we

talk about the perception of quality of life and economic conditions in Europe. In fact, the

majority of respondents indicate partial agreement on this point; stronger expressions of

agreement are more limited.

Positive effects exist on respondents’ ability to purchase goods and services for prices that are

higher than those of similar domestic goods and services; the European products have been

already purchased in abundance (question 13), and their quality is considered to be of a medium

to high level by more than 90% of respondents. Although European products are considered to be

much more expensive than national ones, they are simultaneously considered “appealing” and

“fashionable,” so that more than the 80% of the respondents would be inclined to buy European

products at a price 30% – 50% higher than that of domestic competition.

We register a decrease in the inclination to pay prices that are over 50% more expensive. 60% of

responses to this are nonetheless positive.

This research permits us see the emerging relations between the characteristics of Argentinian

youths (including those with a European origin) and European products, identifying, among other

things, the correlation with subjects who have visited Europe, who have received positive

information about Europe from acquaintances, and who, in particular, desire to free themselves

from the economic crisis.

The analysis of the questionnaire highlights that there is a “desire to escape from the crisis

condition”. This can be seen primarily from the fact that the majority of respondents were able to

spend from 30% to 100% more on European products. The relations between Europe and

Argentina are demonstrated by the fact that a large percentage of the sample subjects (and of their

parents) were born in Europe or have at least travelled in Europe. Moreover, the feelings that

exist between the subjects of the cluster and Europe can be traced in the positive answers to

questions 11, 12, 13, and 19.

In support of the positive answers to our search query, we believe there are strong positive

relations, which must be verified, among those respondents who have positive feelings for

Europe (that is, who have positively answered questions 11, 12, 13 and 19) and those who

strongly desire to escape from the crisis condition (i.e., who have replied negatively to question

16 and positively to questions 17 and 18).


Volume 3, Issue 1

January - June 2014


28

6. IMPLICATIONS FOR MANAGEMENT

The small number of respondents and the specific age group analyzed in this research may

represent a limitation of the study. In any case, it is clear that, despite the specific age group and

the fact that most subjects are students, the respondents represent a class of subjects that in the

immediate future will enter the world of work (some already work). If even now, with medium

and low incomes, they are inclined to purchase European products that are more expensive than

domestic products, and if the inclination towards European products already exists, it is clear that

firms entering Argentina will find a growing and increasingly active market. It is also clear that

the potential demand for, and intention to purchase, such products is encouraged by the economic

policy of the country of origin and by working conditions that, in places like Argentina, still

require much progress if a solid economy is to develop. Moreover, territorial area of the study—

the City of Buenos Aires, represents (together with the Province of Buenos Aires) a very dense

area when compared with the size of Argentina overall. Here it is possible to identify a wide

range of income levels, social classes, market dynamics, and other aspects that are relevant to the

analysis of the national economy.

It is still very difficult to communicate and explain the concept of “Europe” as a cohesive and

politically relevant country; what is not recognized by European citizens themselves is even less

recognized by foreign populations (and so also by foreign demand). Thus, as in the past, on the

international level they see a series of firms based in individual countries, rather than one large

country—a sort of “United States of Europe”. As a matter fact, it is increasingly often that many

countries still contribute to anti-European concepts and to their continued individuality as single

nations and autonomous entities.

We consider that this paper will be useful to the managers of companies that decide to extend

their business in Argentina by considering the positioning of Europe and its individual nations. It

will also be useful for Argentinian marketing agencies that wish to determine the emotional and

psychological dynamics generated in the mind of consumers by the place-of-origin effect.

Finally, it may be useful for European institutions in setting up a newer, stronger plan of

European integration that is able to reduce individualism and negativity in order to share

strengths and to develop the opportunity of economic development abroad.

ACKNOWLEDGEMENTS

Although the present work is the result of joint discussions, sections 3 and 4 are by Giancarlo

Scozzese, and section 1, 2, 5, and 6 by Roberto Bruni.

REFERENCES

Andehn, M., Berg, P. O. (Eds.) (2011). Place-of-Origin Effects: a conceptual framework based

on a literature review. Stockholm (Sweden): Stockholm University School of Business.

Alon, I., Mckee, D. L. (1999). International Franchising Modes of Entry. In Stanworth, J., Purdy,

D., Rabcock, C. R. (Eds.). Franchising Beyond the Millennium: Learning From the Past.

Miami: Society of Franchising.


Volume 3, Issue 1

January - June 2014


29

Andreasen, A. R. (1984) Life status changes and changes in consumer preferences and

satisfaction. Journal of Consumer Research, 11: 784–794.

Bartlett, C.A., Ghoshal, S., (1999). Managing across Borders: The Transnational Solution.

Century Business.

Bertoli, G., Resciniti, R., (2013). Made in Italy e country of Origin Effect. Mercati e

competitività, 2/2013: 13-36.

Bilkey, W., Nes, E., (1982). Country of origin effect on product evaluation. Journal of

International Business Studies, Spring-Summer: 89-99.

Brodowsky, G. H. (1998). The effects of country of design and country of assembly on evaluative

beliefs about automobiles and attitudes toward buying them: A comparison between high and

low ethnocentric consumers. Journal of International Consumer Marketing, 10(3): 85-103.

Chionne, R, Scozzese, G., (2012). Fare business in Argentina: nuovi scenari competitive dal

default ad oggi. Collana Economia e gestione delle imprese, Roma (IT): Aracne.

Dichter, E. (1962).The world customer. Harvard Business Review, 40 (4): 113- 122.

Eroglu, S. A., Machleit, K. A. (1988). Effects of individual and product specific variables on

utilising country of origin as a product quality cue. International Marketing Review, 6(6): 27-

41.

Gurhan-Canli, Z., Maheswaran, D. (2000).Cultural Variations in Country of origin Effects.

Journal of Marketing Research, 37: 309-317.

Guerini, C., Usleghi, A. (2006). Valore del made in, identità di marca e comunicazione di

marketing nelle imprese distrettuali italiane. Liuc Papers – Serie Economia aziendale, 190: 1-

31.

Han, C. . (1989). Country Image: halo or summary construct?.Journal of Marketing Research,

26(5): 222-229.

Jick, T. D. (1979). Mixing Qualitative and Quantitative Methods: Triangulation in Action.

Administrative Science Quarterly, 24(4): 602-611.

Kaynak, E., (1989). How Chinese buyers rate foreign suppliers. Industrial Marketing

Management, 18(9): 187-198.

Kaynak, E., Cavusgil, T., (1983). Consumer attitudes towards products of foreign origin: Do they

vary across product classes?. International Journal of Advertising, 2: 147-157.

Laroche, M., Papadopoulos, N., Heslop, L., Bergeron, J., (2003). Effects of Subcultural

Differences on Country and Product Evaluations. Journal of Consumer Behavior, 2(3): 232-

247.

Laroche, M., Papadopoulos, N., Heslop, L., Mourali, M., (2005). The influence of country image

structure on consumer evaluation of foreign products. International Marketing Review, 22(1):

96-115.


Volume 3, Issue 1

January - June 2014


30

Lentz, P., Holzmuller, H. H.,Schirrmann, E., (2006). City-of-Origin Effects in the German Beer

Market: Transferring an International Construct to a Local Context. Advances in international

Marketing, 17(17): 251-274.

Liefeld, J. P. (1993). Experiments on country-of-origin effects: review and meta-analysis effect

size. In Papadopoulos, N., Heslop, L. A. (Eds). Product-Country Image. Impact and Role in

International Marketing, 117-156. New York: The Haworth Press.

Manrai, L. A., Lascu, D., Manrai, A. K., (1998). Interactive effects of country of origin and

product category on product evaluations. International Business Review, 7(6): 591-615.

Mehta, R., Belk, R. (1991). Artifacts, identity, and transitions: Favourite possessions of Indians

and Indian immigrants to the US. Journal of Consumer Research, 17(3): 398–411.

Nagashima, A. (1970). A comparison of Japanese and US attitudes toward foreign products. The

Journal of Marketing, 34 (1). Doi:10.2307/1250298.

Obermiller, C., Spangenberg, E. (1989). Exploring the effects of country-of-origin labels: An

information processing framework. Advances in Consumer Research, 16: 454-459.

Peterson, R., Jolibert, A., (1995). A meta analysis of the country of origin effect. Journal of

International Business Studies, 4: 883-900.

Price, L., Curasi, C. (1996). If one thing doesn’t get you, another will: Old age transitions and

market vulnerabilities, paper presented at the Association for Consumer Research Annual

Conference, Tucson, AZ.

Schooler, R. D. (1965). Product bias in the Central American common market. Journal of

Marketing Research, 2: 394-397.

Shimp, T. A., Sharma, S. (1987). Consumer ethnocentrism: construction and validation of the

Cetscale. Journal of Marketing Research, 26: 280-289.

Usunier, J. C. (2006). Relevance in business research: the case of country-of-origin research in

marketing. European Management Review, 3(1): 60-73.

Verlegh, P. W., Steenkamp, J.,(1999). A review and meta-analysis of country-of-origin research.

Journal of Economic Psychology, 20: 521-546.

vanIttersum, K., Candel, M. J. J., Meulenberg, T. G. (2003). The influence of the image of a

product’s region of origin on product evaluation. Journal of Business Research, 56: 215 – 226.

Valdani, E., Guerini, C., Bertoli, G., (2000). Marketing Globale, Milano, Egea.

Valdani, E., Bertoli, G., (2010).Mercati internazionali e marketing, Egea, Milano.

Watson, J., Wright, K., (2000). Consumer ethnocentrism and attitudes toward domestic and

foreign products. European Journal of Marketing, 34(9/10): 1149-1166.


Volume 3, Issue 1

January - June 2014


31

Endnotes 1 The ethnocentric human places himself and his group in the centre of the Universe; he accepts “similar” subjects

and with prejudice rejects diversity.

2 Source: InstitutoNacional de Estadística y Censons (INDEC), CensoNacional de Población, Hogares y Viviendas

2010, 2012 data set.

3 In this case, consider some geographical areas, such as the Benelux countries or other geographical areas lacking

precise definition, such as “Eastern European countries” (characterised by the states of the former Soviet Union and

Eastern Bloc), or the “North Africa” geographical area, or the postcolonial French and British colony regions.

4 In the common unconscious, it is the European nations that are geographically peripheral that are, in general,

identified as the components of the European continent. Thus, Europe is thought to consist of France, Germany,

Italy, Spain, Portugal, the United Kingdom, Ireland, Switzerland, Sweden, Norway, Finland.




January-June 2014


32

Third Party Ownership in the field of

professional football: a critical perspective

Rosa Lombardi

Adjunct Professor of International Accounting / Research Fellow in Business Administration,

University of Cassino and Southern Lazio, Cassino, Italy.


Simone Manfredi

Assistant Professor of Business Administration,

University of Cassino and Southern Lazio, Cassino, Italy.


Fabio Nappo

Adjunct Professor of Managerial Accounting for Banking and SME / Research Fellow in

Business Administration, University of Cassino and Southern Lazio, Cassino, Italy.


Submitted: February 12, 2014 / Accepted: April 13, 2014 / Published online: April 15, 2014.


ABSTRACT

The objective of this paper is to analyse the phenomenon of Third Party Ownership in the field of

professional football, by starting with an analysis of existing literature on this topic, focusing

attention on its characteristics, on its possible regulations and on the effects that it may have on

the financial fair play regulations. With a qualitative approach, having investigated into the

strong and weak points of the Third Party Ownership, the contribution ends by making a

proposal aimed at resolving problem related to the nature of this procedure, as well as limiting

the negative impact on norms in this field. The main conclusion is that the phenomenon of Third

Party Ownership can be introduced into the future football business model that includes an

adequate discipline in its operation by federations and international leagues. The latter are in

charge of identifying profitable solutions for growth of the field, in observance of transparency

and integrity of sports competitions with regards to ethical and moral principles doubted by the

diffusion of this phenomenon.

Keywords: Third Party Ownership, Professional football, TPO, football business model, football

team, financial fair play.


Volume 3, Issue 1

January - June 2014


33

1. INTRODUCTION

In the current European scenario, the instrument of listing in the stock exchange and recourse to

bank loans have changed the funding model of professional football teams (Andreef, 2011;

Dobson & Goddard, 2001; Neale, 1964), expanding the range of incoming sources available to

this field.

In particular, the business model of the clubs (Staudohar & Mangan, 1991; Conn, 1997; Franck,

2010; Gomez, et al., 2010; Sordeman, 2013), starting with the use of traditional instruments for

company funding, reflects the demand to increase competitiveness through the adoption of

instruments and/or processes aimed at the correct execution of company management, in full

observance of relative norms.

In this field, the fact that ownership of the rights to the sports performance of players belongs to

third parties, compared with the football team in which the players provide their services,

represents a very much debated practice, resulting in several problems of a regulatory nature.

This phenomenon, recognised on an international level with the name of Third Party Ownership

or TPO (Chadwick & Hamil, 2009; Reck & Geey, 2011) may represent, on the one hand, an

instrument aimed at reducing the financial requirements of football teams for the acquisition of

rights to sports performance of professional footballers; on the other hand, a behaviour that is

morally debatable if not clearly violating the regulations of the most important football

federations on a European level.

Very much diffused in South American and in several European countries, the system in question

imposes rethinking of the football business model, as well as the governance model of the

football clubs (Ferkins, et al., 2009), calling into question regularity of this procedure compared

with the measures related to Financial Fair Play (Késenne, 2007; Warmoll, 2012).

In this regard, the main European federations have intervened, starting with UEFA, with ad hoc

regulations that, in some cases, specifically prohibit the procedure, with a view to efficient

operation of the football system in its entirety.

In light of the above, the objective of this document is to analyse the phenomenon of Third Party

Ownership in the field of professional football, by starting with an analysis of existing literature

on this topic, focusing attention on its characteristics, on its possible regulations and on the

effects that it may have on the financial fair play regulations.

Having investigated into the strong and weak points of the TPO, the contribution ends by making

a proposal aimed at resolving problem related to the nature of this procedure, as well as limiting

the negative impact on norms in this field.

Therefore, the research request of this paper is the following: what is Third Party Ownership?

Starting from its mechanism of operation, what effects can this procedure can on the discipline of

Financial Fair Play? What are the possible proposals to limit critical points and preserve the

strong points in the field of professional football?

The structure of the article is the following. After the introduction, section two analyses the

literature on phenomenon of the TPO in professional football clubs and its international

regulations. Section three describes the research approach. Section four illustrates the research

findings, in terms of impact on the rules of financial fair play and of the strong and weak points

in this field. Section five illustrates the final considerations, the limits and future perspectives of

the study.


Volume 3, Issue 1

January - June 2014


34

2. LITERATURE REVIEW

2.1 The phenomenon of the TPO in the professional football clubs

Professional football can be considered a business and sometimes professional football teams are

listed companies as written by Capasso and Rossi (2013). As demonstrated by the results of some

analysis based on a football team’s corporate governance, professional football team management

requires both good sport performance and sustainable financial performances.

In this way some stakeholders can be considered as company suppliers because they share

essential resources with the company and this aspect entitles prominent stakeholders to have

some informal influence on management decisions and also on corporate governance (Capasso &

Rossi, 2013).

Throughout the years, professional football clubs have been subjected to several changes that

have, in some cases, had a very important effect on their financial structure.

Up until the second half of the twentieth century, professional sports clubs funded themselves

through the payment of tickets to watch football matches, with support provided by local and

national government authorities and, finally, thanks to investments made by private companies.

Subsequently, around the Sixties and Seventies, income from publicity and sponsorships

increased dramatically, creating a direct form of identification between the funder and the

football club (Andreef, 2006).

Towards the end of the Eighties, the model started to show its first signs of failure with regards to

loans caused by the payment of television transmission rights of the match.

In this direction, the ascent of televisions in funding of football clubs generated important effects

within the football scenario, especially with regards to the buying and selling of talents.

In this regard, some small clubs, aware of the fact that they could not compete in the acquisition

of young footballers, decided to specialise in their training.

The above has created space for new forms of management of footballers, whose main objective

is represented by a reduction in relative management costs.

Among these forms of management of footballer’s scorecards, special attention should be given

to the so-called TPO or Third Party Ownership, a financial instrument whose origins go back to

South American countries but that, in the last few years, have undergone strong expansion within

the European football scenario (Wilson, 2007).

From a technical point of view, the operation is characterized by the presence of third parties,

acting as public prosecutors, private investors or, finally, investment funds, whose objective is

acquisition of the stake represented by a quota of rights to the sports performance of the

footballer.

By purchasing a variable percentage of these stakes, they guarantee a possible economic benefit

represented by a possible capital gain generated upon its transfer.

Therefore the TPO represents a funding mechanism that if, on the one hand, favours clubs in the

acquisition of young stars, on the other hand it guarantees interesting economic returns to the

third parties involved in the operation.

In this regard, during the last few years, several investment funds have emerged that are

specialized in the acquisition of rights to sports performance of footballers aged between 15 and

16.

Among these special attention goes to the Doyen investment fund, whose activities appear to be

extremely diversified.


Volume 3, Issue 1

January - June 2014


35

The group works across give market areas: metals and minerals, fuels and gas, energy and

infrastructures, buildings and hospitality, sports and entertainment.

Sponsorships are to be found among the models through which the fund finances football team

and the group has managed to create visibility since October 2011 thanks to this form of funding.

Its introduction to the world of football can be attributed to the sponsorship of clubs such as

Sporting Gijon, Getafe and Atletico Madrid, purchasing a third of the scorecard of Mangela and

Defour for 5 million euro.

Since then the list of talents owned by the fund has expanded drastically, including Radamel

Falcao, Nelio Moraes, Felipe Anderson and Jose Antonio Reyes.

A second operator that deserves attention, with reference to the case in question, is the Media

Sport Investments, a fund chaired by Kia Joorabchian, an Iranian business man who, in 2004,

once he was the owner of the Corinthians, succeeded in acquiring the ownership of two players,

Carlos Tevez and Javier Mascherano, after important negotiations with Boca Juniors and River

Plate, thanks to which the Corinthians won the Brazilian championship (Greco, 2011).

Just as interesting is the operation implemented by Joorabchian in August 2006 when, with the

objective of purchasing West Ham, he sent the two Argentinians Tevez and Maschereno to

England, transferring the relative performance to the Hammers on a temporary basis (Bilal,

2007).

The first problems for the entrepreneur arose following this transfer, as Joorabchian’s main

objective was to purchase West Ham (Gambino, 2011); once this possibility disappeared,

investigations were carried out into the transfer of the footballers as the transfer formula of the

performance of the two footballers violated the rules of the English Federation.

Furthermore, investigations proved that West Ham was the owner of the score card of Tevez, but

Joorabchian had an option right on this football player.

A few years later, during the transfer of Tevez to Manchester United, another problem arose

related to identification of the ownership of the score card of the footballer (Kelso, 2009).

The problem ended up in the Arbitration Sports Law Court and ended with an agreement between

the English club and Joorabchian, who recognized ownership of the scorecard of the footballer to

the club and payment of 3 million euro to the London club.

It can be said that this new form of business based on an increase in the economic value of rights

to the sports performance of professional footballers has resulted in a long debate on a national

and international football scenario, obliging the clubs and federations to define a whole range of

measures aimed at preventing the danger that fate of football entertainment may be affected by

dynamics of a financial and speculative nature.

Some studies on the phenomena (Robatinho, 2014) have demonstrated that the arguments for its

elimination are very poor and they do not justify the elimination.

Moreover, the interests of people against use of the TPO seems so far from the reasons given

publicly for its discontinuation. The main interest of big clubs and powerful leagues alike is to

maintain this financial procedure

2.2 TPO regulations in the football field on an international level

Regulations related to the transfer methods of players from professional football teams have, in

time, undergone several changes related to the need to introduce adequate means of protection in

the field of professional football (Capasso & Rossi, 2013) and, in particular, the mechanism that

lies at the basis of the discipline of financial fair play (Uefa, 2010).


Volume 3, Issue 1

January - June 2014


36

With the advent of the phenomenon of the TPO in the international scenario, the main European

federations, starting with UEFA and FIFA have organized specific intervention, aimed at

prohibiting and/or limiting the acquisition procedure of parts of rights to sports performance of

professional players by individuals outside of the football clubs.

Even earlier, following the Bosman (Clarich, 1996) sentence, the agreement signed in March

2001 by FIFA, by UEFA and by the European Union regulated the sale of football players on an

international level, limiting in some way, the transfer market together with the famous

consequences in increasing hiring costs of footballers and favouring attention towards young

stars (Baroncelli, 2004).

With reference to the procedure of the TPO, article 18 bis of the “FIFA Regulations on the Status

and Transfer of Players”1 intervenes on the regulations scenario of the phenomenon, establishing,

in point 1, that no club should be committed to contracts that allow any party or third parties to

interfere with working relations and the transfer of players, as well as the action policy and

activities carried out by the team. Subsequently, the FIFA disciplinary Commission, as indicated

in point 2 of the aforementioned article, has the power to impose disciplinary measures on the

clubs that do not respect the obligations indicated with regards to the influence of third parties.

In the same way UEFA has established, through article 18 of the “Regulations of the UEFA

Champions League 2012-15 Cycle, 2012/13 Season”, in point 22, that football players should be

duly registered with the national federation by virtue of their belonging to a football club.

In order to participate in UEFA club competitions, players should be registered with the

aforementioned federation within the terms necessary to play in a club and in compliance with

the indications included in article 18 of the mentioned regulation.

In Brazil many agencies and/or investment funds exist that deal with the purchase of professional

players. An example can be found in ownership of the scorecard of the player Paulo Henrique

Ganso, the midfield player of the club San Paolo.

Before transfer of the player from Santos to San Paola, the DIS investment fund of the Sonda

group, owned a share equivalent of 45% of performance rights of the football player3: before 21st

September 2012, these rights belonged to the Santos club (45%), the DIS agency (45%) and the

player Ganso himself (10%).

The agency that managed the investment fund wanted to transfer the quota of the player to some

European teams, pushing Santos, the owner of another percentage of rights on the player, out of

the sales decision. The situation generated a legal controversy between the DIS agency and the

Santos sports club, as well as a report to FIFA and to the Brazilian national federations.

On a European level, application of the FIFA regulations (Santos et al., 2011) with regards to

TPO resulted in the exclusion of the Finnish club Tampere United from all international

competitions, and it was influenced by an agency from Singapore who owned rights to sports

performance of some of its players.

It can be observed that article 18 bis of the FIFA regulations does not specifically prohibit the

TPO, to the contrary of what the Premier League and the Football Association did, as they issued

specific rules aimed at prohibiting all forms of ownership of the scorecards of football players by

third parties and/or investment funds.

In greater detail, the Premier League started to deal with the phenomenon from the 2008/2009

football season, establishing that third parties could not exercise their power on club policies or

on the results achieved by the team in which the footballers, of whom they owned a share of

sports performance rights, played.


Volume 3, Issue 1

January - June 2014


37

Subsequently, the Premier League prohibited, through the rule U.36 of the “Premier League

Handbook Season 2012/13”4, the TPO of football players registered in the Premier League:

basically, the clubs are authorized to make payments to third parties or receive payments from

third parties for the transfer of the scorecard of footballers, with the objective of buying or selling

the participation that external individuals own on the footballers themselves, with a view to their

transfer to the Premier League.

A very similar situation can be found in the regulations of the Football Association5, which

guarantees that the amounts generated from the future transfer of footballers should be kept by

the selling club. This regulation eliminates the chance for third parties to make any future

transactions, providing for a strict discipline through which a club can purchase the participation

of a player from third parties in complete respect of the football norms, which state that any

amounts paid to third parties should be registered in specific financial statements and that the

underlying agreement should be subject to approval by the Football Association.

The reason for prohibition of this procedure lies in the fact that federations imagine risks related

to the loss of integrity of sports competitions, especially from an ethical point of view, as well as

the possibility of events of football corruption, distorted by the general performance of the

championships.

Furthermore, this phenomenon can drastically increase the replacement rate of players of the

football teams, with the objective of achieving returns on the transfers of quota of the relative

rights.

Moreover, extensive European debates on the topic of TPO regulations are, up until now, still

underway: it is not by chance that the objective of the FIFA Congress of 2013 was to undertake

measures related to Third Party Ownership regulations in Europe.

Recently, the European Commission analysed the football scenario, by examining the economic-

corporate and legal profiles related to costs borne by European sports clubs for the transfer of

footballers, especially on an international level.

In this regard, the Commission observed that clubs spend large amounts of money for the transfer

of players. This mechanism establishes an improvement to teams with greater availability, unlike

the teams with transferred players, burdened by training costs of the players.

In the study drawn up by KEA, European Affairs and the Centre for the Law and Economics of

Sport6, in 2013, the transfer rules of players in the field of professional footballers are analysed,

with specific reference to the laws of the European Union and the economic profiles of the TPO.

Figure 1 illustrates an analytical picture of EU countries with norms on the transfer of football

players and regulations contained in measures predisposed by sports organisations.

With regards to the indications provided in the table, we can see that the regulations issued by the

national sports authorities overcome legal previsions on the topic of transfers of football players.

While establishing a deficiency in regulations and a need for integration of current measures, the

KEA study suggest four main objectives of the regulation:

- guaranteeing loyal and balanced sports competitions;

- protecting players of less than 18 years of age and encouraging the development of young

stars;

- establishing the resolution mechanisms of sports controversies;

- creating norm references for the phenomenon of ownership by third parties.


Volume 3, Issue 1

January - June 2014


38

Figure 1. European countries with sports regulations

Source: KEA European Affairs, CDES, The Economic and Legal Aspects of Transfers of Players,

January 2013, available at http://ec.europa.eu/sport/library/documents/f-studies/study-transfers-

final-rpt.pdf.

Among these, the problem of the TPO is also referred to through an analysis of FIFA regulations

and national measures for the main European countries.

After having analysed the positions of the main international federations, such as UEFA and

FIFA, the Premier League and the Football Association, it may be useful to take into

consideration the regulations of other EU countries with regards to the TPO.

Apart from its prohibition in article 33, point 4, of the Polish Football Association7, it can be seen

that the French Ligue de Football Professional has imposed prohibition of the TPO, through

emission of article 221 of the “Charte du Football Professionnel”8, which states that every club

can undersign contracts exclusively with other clubs if the contract itself does not establish,

directly or indirectly, financial rights to third parties.

Article 60 of the regulation issued by the Swiss Football Association9 for the Swiss Football

Ligue states, in point 2, that no Swiss club can undersign contracts that allow third parties to

acquire the ability to have an effect on the hiring and/or transfer of footballers, as well as

influence the policies and performance of the team.

In Germany, article 5 of the regulations of the Deutsche Fußball Liga10

prohibits every kind of

influence by third parties with regards to professional footballers as well as club policies.


Volume 3, Issue 1

January - June 2014


39

The regulations of the Austrian Football League11

, inspired by those of UEFA, state that football

clubs should be fully and exclusively responsible for their players.

The Liga Nacional de Fútbol Profesional (LFP), in Spain, also respects the clause on the

influence of third parties, in accordance with article 18 bis.

In Belgium, the regulations of the Pro League do not prohibit the TPO, even if they state that

national clubs should not establish work contacts with players owned by third parties.

The Spanish LFP and the Belgian Pro League are just some samples for which monitoring of the

value of rights to sports performance of players owned by third parties is provided for, with the

objective of controlling the action policies undertaken by national clubs.

In Italy, in accordance with ex article 102 bis of the NOIF12

, a participation agreement has been

established according to which it is possible to transfer football players between two clubs,

including liquidation of the right to sports performance of the footballer or final transfer of the

footballer himself, at the end of the contract.

The transfer mechanism of football players in Italy is regulated by articles 102, 102 bis and 103

of the NOIF, regulations related to the transfer of temporary and final contracts. In the case of a

final transfer, the company that acquires the right to sports performance of the footballer player

can undersign a participation agreement with the transferring company according to which the

participation of the latter in financial rights deriving from the contract itself, is provided for.

Therefore the phenomenon of ownership by third parties in Italy is allowed, exclusively, in

observance of the conditions indicated in point 9 of article 102 bis of the NOIF: the football

company that owns the aforementioned participation right may transfer a participation quota to

the right related to the sports performance of the football player to a third company.

3. RESEARCH APPROACH

The research is developed according to the study of national and international literature,

proposing to the scientific community and to operators of the field, a conceptualization of the

phenomenon of Third Party Ownership in the field of professional football.

Analysis of the theme of this paper integrates and updates existing literature, allowing for the

definition of Third Party Ownership in the field of professional football by emphasizing its strong

and weak points.

Starting from the application of a single method approach, the research sources are of a

secondary nature.

In this way, data acquisition (Yin, 2003) was achieved through the following sources:

- scientific books in the field of professional football;

- scientific paper from national and international literature related to professional football and

third party ownership;

- public sources such as specialised websites, databases (Ebsco, Jstor, Google scholar, Science

direct), especially related to both the Third Party Ownership phenomenon in the field of

football and international cases of TPO’s football players;

- news and documents on the theme.

Validity of the research results is based on a comparison of the information collected with the

secondary data used.


Volume 3, Issue 1

January - June 2014


40

4. FINDINGS AND DISCUSSION

4.1 The impact of TPO on the rules of financial fair play

In the last few years football clubs have been affected by drastic changes that have, in some

cases, conditioned their operative performance. In particular, the desire to provide growing

talents has resulted in an increase in financial needs, inducing football companies to diversify

loan sources.

According to some scholars (Andreef, 2011), this new funding model lied at the origin of some

problems that characterize the current scenario of professional football, as only the richest clubs,

able to buy the best talents, would be capable of dominating European football competitions.

Consequently, this growing concern appears to be represented by the fact that the balance of

competitions may be influenced by dynamics of a financial nature but not of a sports nature and

that, in this context, televisions can play an important role for the future of football entertainment.

It is important not to forget that it is exactly through the sale of television rights that many clubs

have not succeeded, in the last few years, in hiring talented players, causing at the same time a

general increase in salary levels of professional footballers.

We cannot omit the fact that this form of modus operandi can result in a progressive economic-

financial crisis of the field as a collateral effect, that has risked compromising, in some cases,

regular execution of the competitions.

In this context, we can understand the decision of UEFA to issue, on 27th

May 2010, the

regulation related to “Club Licensing and Financial Fair Play Regulations”.

The objective of the Regulations is, in reality, pursuance of a greater discipline and rationality in

management of club finances through:

- a reduction in pressure on salary costs and transfer costs;

- the promotion of long term investments in the field of youngsters and infrastructures;

- the protection of long term sustainability of European football;

- the encouragement of clubs in supporting themselves through personal proceeds;

- the payment of debts in observance of the expiry dates.

It is a known fact that, in the last few seasons, many clubs have been through difficult situations

and in some cases have risked failing to face their obligations deriving from normal operative

operations.

In some cases football clubs in serious economic-financial difficulties avoided bankruptcy

(Deloitte, 2010) not only through the application of strict rules already applied, but especially

through intervention, in extremis, by majority shareholders, contributing to an increase in the risk

of unscrupulous managers and to increase the volatility of a field that, in the same way as others,

should be based on management criteria aimed at medium and long term sustainability.

In this light, rules of financial fair play should represent another step towards achieving a system

of controls carried out on behaviour, organization and the observance of correct management

rules by football clubs.

With regards to the criteria that should be respected in order to take part in European

competitions, an important novelty is represented by the break even rule, a rule according to

which the difference between costs and proceeds calculated over a time period of three years,

should not exceed a certain value.


Volume 3, Issue 1

January - June 2014


41

The definition of proceeds and costs that may be taken into consideration is established by article

58 of the Regulation, according to which:

«applicable income means proceeds deriving from the sale of tickets, television rights,

financial proceeds, sponsorships and publicity, commercial activities and other operative

proceeds, as well as capital gain or proceeds from the transfer of footballers, as well as

proceeds from the sale of material assets as long as they are replaced by new structures.

These forms of income do not include non-monetary elements or some proceeds deriving

from non football related activities. In the same way, applicable income also includes sales

costs, personnel costs and other operative costs, plus amortisation or transfer costs of

footballers plus financial costs and dividends » (…).

The objective of this rule, among other things, is to stimulate just some of the costs, excluding the

following:

- the ones sustained for the building of structures destined for club activities right through to

construction of the plant;

- costs of the materials and services used in activities of the Under 21 sector;

- personnel costs related to Under 18 footballers and employees involved in the youngsters

sector;

- costs related to materials and services used or consumed in the execution of club activities;

- donations to other entities whose objective is represented by progress of social development.

As can be seen, the break even rule only considers some of the cases in question in terms of cost

in order to allow for a balanced development and sustainable management of the football clubs

(Break even Rule Uefa).

Despite the fact that UEFA has defined strict rules to rationalize club costs, a strong debate is

underway with regards to the possibility of important European football clubs in eluding the

technical norms that betray the general philosophy even if they do not contravene any article of

the discipline itself.

In this regard, it is interesting to analyse the operation carried out by Benfica who, by transferring

variable quota of between 10% and 20% of the rights to sports performance of 5 footballers to the

Benfica Star Fund, have almost doubled the value, putting liquidity into the cash tills of the clubs

through this elusive practice.

It is easy to see how, from an economic-company point of view, the operation in question

generates a strategy aimed at favouring, on the one hand, the creation of a capital gain through

the transfer of rights to sports performance, on the other hand modifying the structure of club

costs, as long as the accounting of sales operations of rights to sports performance of footballers

can be carried out through two separate models: “capitalisation and amortisation”, and “income

and expense”. In the first case, the rights are considered in the same way as intangible assets,

with a consequent registration between activities of the financial situation of their value, at the

same level as the purchase cost; once registered, the rights in question are amortised, in every

financial year, according to the duration of contracts. In the second case, the rights are

considered as year costs, to be attributed directly to the profit and loss statement.


Volume 3, Issue 1

January - June 2014


42

From this point of view the possibility of transferring a quota of rights to sports performance

rights of the footballers would result in a reduction of management costs in terms of less

amortization and lower wages and salaries.

In the same way the clubs, still owning a percentage of rights related to footballers, may benefit

from a part of the possible capital gain created upon the transfer.

With reference to the operation carried out by Benfica and in consideration of the affects that this

behaviour, if generalized, would have had on the economic-financial structure of the clubs,

UEFA has undertaken a different position, specifying in the 2012 edition of the UEFA Club

Licensing and Financial Fair Play, as only the capital gains deriving from the transfer of a

footballer to another football club should be considered effective (Uefa, 2012).

Finally, we can understand how the TPO can represent an instrument capable of arousing interest

for football clubs and for investment funds as it adapts to satisfaction of the objectives of both

individuals from an economic-financial point of view and the avoidance of norms on fair play

imposed by UEFA.

4.2 The TPO procedure, the transfer of players and other emerging phenomenon:

analysis of some trends under way

The key to understanding the football phenomenon of the “ownership of third parties”, in

observance of the norms introduced on financial fair play, focuses attention on the need to adopt

less speculative sports practices that are mainly aimed at the adoption of ethical principles

(Zanda, 2009), in line with the objectives announced through the introduction o the norm corpus

“UEFA Club Licensing and Financial Fair Play Regulations” issued by UEFA. Among these,

the ones indicated in article 2 are worth a mention, as they recognize the principles of

transparency, protection of creditors, rationality and sustainability of the football system.

The statement of sustainability of the football field is consolidated with recent UEFA

recommendations, with regards to the phenomenon of Third Party Ownership: limitations and

prohibitions exist by UEFA in implementing this practice in the European football scenario.

The process under way seems to undertake characteristics related to moralization, through the

declaration of clear, transparent and sure rules of the main federations and international leagues.

They confer growing credibility to operation of the field and, at the same time, they increase the

level of general trust in working of the system.

However, the decisions of UEFA with regards to the question of TPO, still undergoing

development, introduce new problem to the international debate, connected with the free

circulation of capital, goods and people and member countries of the European Union.

With reference to article 63 of the Treaty on Operation of the European Union13

it states:

«….that all restrictions related to movements of capital between Member countries and

third parties are prohibited».

Therefore, a control of compatibility of restrictions appears to be necessary, as well as restrictions

in the field of TPO, with the community principles of free circulation of individuals.

The introduction of ad hoc rules, norms and recommendations, starting with those of UEFA,

regulating the FFP and TPO, focus attention on two important aspects:

- the current existence of financial problems by professional football teams;


Volume 3, Issue 1

January - June 2014


43

- changes in the governance system of football teams through the adoption of alternative forms

of funding.

In light of this, the prohibitions and limitations of TPO imposed by the main federations and

European leagues drive away the possibility of introducing its own discipline, in observance of

the integrity of sports competitions.

The hypothesis of regulation of the TPO, regardless of its prohibition and limits undertaken with

reference to the financial fair play norm, allow for the recognition of several advantages for the

field of professional football, with specific reference to the following: young stars, professional

footballers, football teams and external investors.

In reality it is possible to identify a new economic instrument in the ownership of third parties,

aimed at funding the growth of young footballers, the majority of which are from developing

countries. In this way, investments made by third parties are aimed at training as well as the

technical and professional growth of footballers especially in initial phase of their career.

This hypothesis also configures the TPO as an instrument of securitization of the intellectual

property of footballers, despite the fact that the phenomenon of securitization of IP (Hillary,

2004) in fields of a high cognitive intensity of the current economy is much more diffused.

The advantages of the TPO also involve professional football players who are the beneficiaries of

investments made by third parties.

If on the one hand, the financial disbursements borne by ad hoc agencies, investors or funds are

aimed at the acquisition of a quota of rights to sports performance of professional footballers,

with a consequent reduction in the investments borne by the clubs, on the other hand uncertainty

from the winning of sports competitions by professional football teams makes achievable

proceeds achievable entirely aleatory.

Therefore, the possible regulation of the TPO allows for the clubs involved in the phenomenon to

share risks, deriving from the investment made for the acquisition of performance rights of

footballers, with external individuals.

Furthermore, it is clear that, as far as professional football clubs are concerned, the transfer of a

quota of rights to sports performance of the player to third parties is an instrument to source

liquidity from the market.

In the future model of football business, the possible discipline of TPO should define the rights

and objectives of external investors, also according to the objectives that the latter may pursue

and that often are not in line with the objectives defined by the teams.

From here identification of the operative procedures for external investors is backed by the

possibility of regulating the market of sports performance rights of footballers that they latter

power.

Some examples can be found in the transfer of performance rights of footballers: in the

hypothesis of a transfer, the third party benefits from the capital gain compared with the purchase

price of the quota that he owns; in the hypothesis of contractual renewal, the third party receives

a percentage calculated on an increase in wages of the footballer.

Furthermore, it is useful to state that the majority quota of performance rights of footballers is

owned by the team, leaving external individuals with the possibility of purchasing a minority

percentage. Therefore, the third party does not have any decision making power, or governance

power as this should be left to the football club.

Lastly, possible regulation of management of the investment funds should intervene to guarantee

operation of the TPO. In the perspective of protection of the integrity of sports competitions, a


Volume 3, Issue 1

January - June 2014


44

proposal in this regard has been made by the creation of a register controlled by FIFA in which

the funds that carry out sales operations on footballer rights can be registered, excluding the ones

belonging to football clubs.

5. CONCLUSION AND PROPOSAL FOR FUTURE RESEARCH

In light of some trends underway in the field of professional football, this document has analysed

the topic of Third Party Ownership, interpreting the strong points and the weak points of the

phenomenon with a view to identifying its possibilities of development.

If on the one hand, TPO was born with positive objectives in order to fund young football stars in

developing countries and to reduce the financial requirements of football teams, on the other hand

the possibility of owning a quota of sports performance rights of footballers by external investors

of the club, meets up with the limitations and prohibitions of the main federations and European

leagues.

UEFA and FIFA and the majority of football federations on a European level recognise the

phenomenon as a means to elude the rules of Financial Fair Play, as it allows for a reduction in

investments by clubs as well as the amortization quota related to the purchase of footballer rights.

Furthermore, the main critical points of the phenomenon include misalignment of the objectives

of external investors with those pursued by the clubs.

In this direction the expression of clear and transparent rules for the TPO aim at guaranteeing the

balance of sports competitions in observance of growth demands of the field, with an increase in

the last few years of the level of debt of many clubs.

Furthermore in this chapter, the analysis carried out on the critical points of TPO contrasts the

hypothesis of renewing the football business model through some disciplinary proposals of

ownership by third parties.

In this regard, it is important to remember that the advantages of TPO can be recognised in the

minor investments made by clubs for the acquisition of footballer rights, or in reduced financial

disbursements, in lower amortization costs, in the growth of resources and in the possibility of

achieving greater profit.

Regulating TPO means maintaining its strong points, recognising the benefits to several

individuals, such as young stars, professional footballers, football teams and external investors,

limiting the weak points at the same time.

In these terms, the TPO is created as an instrument of capitalization of the intellectual property of

footballers, or as an economic instrument capable of funding the growth of footballers and

reducing the financial needs of clubs, furthermore allowing for regulation of the market of quota

on footballer rights owned by external investors.

To conclude, the phenomenon of TPO can be introduced into the future football business model

that includes an adequate discipline in its operation by federations and international leagues.

The latter are in charge of identifying profitable solutions for growth of the field, in observance

of transparency and integrity of sports competitions with regards to ethical and moral principles

doubted by the diffusion of this phenomenon.


Volume 3, Issue 1

January - June 2014


45

ACKNOWLEDGEMENTS

This paper is the joint work of the three Authors: paragraphs 2.2, 3 and 4.2 are by Rosa

Lombardi, paragraphs 1 and 5 are by Simone Manfredi and paragraphs 2.1 and 4.1 are by Fabio

Nappo.

REFERENCES

Andreff, W. (2006). Team sports and finance. In Andreff, W., Szymanski, S. (Eds.). Handbook

on the Economics of Sport. Cheltenham, UK: Edward Elgar Publishing.

Andreff, W. (2011). Team sports and finance. In Andreff, W., Szymanski, S. (Eds.). Handbook

on the Economics of Sport. Cheltenham, UK: Edward Elgar Publishing.

Baroncelli, A. (2004). Le regole del gioco. In Lago, U., Baroncelli, A., Szymanski, S. (Eds.). Il

business del calico. Milano: Egea.

Bilal, A. (2007). Original Tevez and Maschereno contracts with West Ham. Soccerlens.com, 8

June.

Capasso, A., Rossi, M. (2013). Systemic value and corporate governance. Exploring the case of

professional football teams. Business System Review, 2(2): 216-2136.

Chadwick, S., Hamil, S. (2009). Managing Football. An International Perspective. Oxford:

Butterworth-Heinemann.

Clarich, M. (1996). La sentenza Bosman. Verso il tramonto degli ordinamenti giuridici sportivi?,

Riv. Dir. Sport., p. 393.

Conn D. (1997). The Football Business: Fair Game in the ‘90s. Edinburgh: Mainstream.

Deloitte, Annual Review of Football Finance, june 2010.

Dobson, S., Goddard, J. (2001), The Economics of Football. Cambridge: Cambridge University

Press, Cambridge.

Ferkins, L., Shilbury, D., McDonald, G. (2009). Board involvement in strategy: advancing the

governance of sport organization. Journal of Sport Management, 23(3).

Franck E. (2010). Private Firm, Public Corporation, or Members’ Association: Governance

Structures in European Football. International Journal of Sports Finance, 5(2): 108-127.

Gambino, S. (2011). Tre nazionalità, due identità e un mandato d’arresto: ecco chi è il misterioso

Kia Joorabchian, l’uomo che vuole portare Carlos Tevez in Italia, goal.com score to live, 28

Novembre.

Gomez, S., Kase, K., Urrutta, I. (2010). Value creation and sport management. New York:

Cambridge University Press.

Greco, C. (2011). Tevez ed i fondi d’investimento nel calcio. Iusport Italia, 26 Novembre.

Hillary, J. (2004). Securitization of Intellectual Property: recent trends from the United States.

Washington: Core Institute.


Volume 3, Issue 1

January - June 2014


46

Kelso, P. (2009). The mysterious case of who owns Carlos Tevez, The Daily Telegraph, 15 May.

Késenne, S. (2007). The economic theory of professional team sports. An analytical treatment.

Cheltenham, UK: Edward Elgar Publishing.

Myers, M.D. (2013). Qualitative research in Business & Management. London: Sage.

Neale, W.C. (1964), The Peculiar Economics of Professional Sports, a Contribution to the Theory

of the Firm in Sporting Competition and in Market Competition. Quarterly Journal of

Economics, 78(1): 1-14.

Reck, A.N., Geey, G. (2011). Third-party ownership & UEFA’s FFPR: a Premier League

handicap. Sport & EU Review, 3(2), december.

Robatinho M. (2014). Third-party ownership of football players. Why are the big actors in the

football market afraid?. Bloomington: Booktango.

Santos, R.B., Mestre, A.M., Raposo De Megalhaes, F. (2011). Iel Sports Law in Portugal. The

Netherlands: Kluwer Law International.

Sordeman, S. (2013). Football and Management: Comparisons Between Sport and Enterprise.

London: Pallgrave Macmillan.

Staudohar, P., Mangan, J. (1991). The Business of Professional Sports. Urbana: University of

Illinois Press.

UEFA (2010). UEFA Club Licensing and Financial Fair Play Regulations. Nyon, UEFA.

UEFA (2012). UEFA Club Licensing and Financial Fair Play Regulations. Nyon, UEFA.

Warmoll, C. (2012). Fair play rules set to disrupt football finances. Accountancy, 148(1426): 65.

Wilson, B. (2007). Action urged on footballer investment. BBC News, 12 October.

Yin, R.K. (2003). Case Study Research: Design and Methods. Thousand Oaks: Sage.

Zanda, G. (2009). Il governo della grande impresa nella società della conoscenza. Torino:

Giappichelli.

Endnotes 1 www.fifa.com/mm/document/affederation/administration/01/06/30/78/statusinhait_en_122007.pdf

2 www.uefa.com/MultimediaFiles/Download/Regulations/competitions/Regulations/01/79/68/69/1796869_

DOWNLOAD.pdf

3 www.calciomercato.com

4 www.premierleague.com/content/dam/premierleague/site-content/News”publications/handbooks/premier-league-

handbook-2012-2013.pdf

5 www.thefa.com/-/media/Files/TheFAPortal/governance-docs/rules-of-the-association/third-party-investment.ashx

6 ec.europa.eu/sport/library/documents/f-studies/study-transfers-final-rpt.pdf

7 www.pzpn.pl/index.php/eng

8 www.unfp.org/fileadmin/user_upload/Charte_du_football_professionnel/chartePro.pdf


Volume 3, Issue 1

January - June 2014


47

9 http://www.football.ch/sfv/cm/WR_2012_F.pdf

10 www.bundesliga.de/media/native/dfl/ligastatut/neue_lo/lizenzordnung_spieler_los.pdf

11 www.flutlichtanlagen.at/Downloads/lizenzierungshandbuch.pdf

12 www.figc.it

13 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:083:0047:0200:it:PDF




January-June 2014


48

Financial literacy of Slovak universities’

students

Michal Pružinský

Professor Ing. CSc., University of Economics in Bratislava, Faculty of Business Economics in

Košice, Slovakia.


Bohuslava Mihalčová

Professor Ing. PhD., University of Economics in Bratislava, Faculty of Business Economics in

Košice, Slovakia.

e-mail: [email protected].

Submitted: March 11, 2014 / Accepted: April 15, 2014 / Published online: April, 18, 2014.


ABSTRACT

Many of us understand the ability to read or write also within the term of financial literacy

(Zarcadoolas, Pleasan & Greer 2006). But we may see the numbers of areas in which people

show functional literacy, for example cultural literacy, emotional, media, financial, health

literacy and so on. A key element in people’s decision making in all areas of their lives is

financial literacy. Ability to understand financial products which normally people come into a

contact is a reflection of financial literacy of everyone. General problem of society is inadequate

level of financial literacy, therefore it is appropriate to search this issue in depth. Within the first

part of this paper we deal with defining literacy in a general way, further we explore more details

on financial literacy, than we provide selected surveys in this area and make proposals and

measures for improving of financial education. In case those university students have a higher

level of financial literacy they may be a contribution to whole society in sharing the knowledge

within their environment.

Keywords: financial literacy, financial education, financial product, survey.

1. INTRODUCTION

Education is an important part of our everyday life. It has been available for people in various

business, social and economic areas since ancient times. Therefore, adequate attention has to be

given to this important issue. Education is also a process which is the gateway to literacy.

Financial education is an important type of education. Financial education is becoming a key

aspect in decision making on all the issues related to our day-to-day life (Lusardi & Mitchelli,

2007). The low level of financial literacy is a worldwide problem, and it is more than appropriate

that such an in-depth study of this issue be performed. The acquisition of financial literacy is not


Volume 3, Issue 1

January - June 2014


49

just about skills, we identify manage their finances, but also on knowledge of facts and technical

terms from the field. The aim of the present paper is, first of all, to define in general terms

financial literacy, deal with financial literacy and selected surveys in this area as well as to define

indicators of financial education and financial literacy. This contribution is part of the starting

points of the scientific project VEGA 1/0474/12 financial literacy of university students in

Slovakia.

2. FINANCIAL LITERACY AND FINANCIAL EDUCATION

Already in the 70s of the last century took place heated discussion on the issue of how to build

literacy, which is not only trans-disciplinary problem, but it becomes a lifelong phenomenon.

The idea of financial education was part of the European agenda long before the birth of the

crisis, but was received with understanding. Politicians in national policy making are employed

much more "important" issues to better inform and protect consumers. Therefore they did take no

steps to ensure long-term financial education. Fluctuations and pressures on the world's financial

and capital markets, as well as insurance and bank failures in the context of the global financial

crisis, but they precede new consumer issues. Negative indicators in the field of employment –

unemployment rate in the euro area in 2010 increased to 10% and in 2011 reached 9.9%. This is

the highest growth rate since 2000, suggesting weakness and instability brought economic

growth. The threat is uncertainty in the financial markets, the problem with the deficit and public

debt in the EU. State of public finances in the European Union countries during the crisis

worsened. The average deficit reached 7% of GDP and the debt ratio over 80% of GDP, well

above the reference value of the Maastricht criteria of 3% and 60%. (Kubátová 2011; Obadi et

al., 2011).

2.1 Financial literacy and households’ debts

It’s also necessary to mention the impact of the economic crisis on the ever increasing

indebtedness of households in the world. We show in Table 1 (see appendix). households’ debts

in relation to GDPs in the euro zone countries. According to the Eurostat measurements the

indebtedness of Slovak households in the year 2011 was the lowest among 17 euro zone

members. Bank lending’s to households in proportion to GDP is 24.9%. Why so? One of the

likely factors may be lower incomes of families that in comparison with other euro zone countries

make it impossible for Slovak population to get loans in the same amounts as in the countries

with higher average salaries. Another factor is in minds of the people who did not use loans for

households very often. Even for buying the apartments. It was not possible to buy an apartment

during the socialistic collective economy. The apartments were given to the families just for use

of them. People may build the houses just for themselves, but on the land (property) belong to the

state. They built the houses for themselves primarily on the countryside. They built the houses

but they had to rent the land under the house (e. g. for 100 years). The loans for inhabitants were

provided mainly for furnishing of the apartments, because percentage of people who built the

house was app. 3 %. The interest was very low (below 6%) at that time. Young couples who

furnished the apartments did have more extras from the government (e. g. special loan with 2%

interest, discount for each child born within the loan period). But people did not own the


Volume 3, Issue 1

January - June 2014


50

apartments. They were just the users of flats, which were belonging to the country collective

ownership. These conditions were simple, but very strict and had to be obeyed by all.

Since 1989 velvet revolution the situation had changed and people have to buy apartments.

People do not have experience and relationship towards the properties. There is a majority of

people who do not exercise proper way have to care for the property (e. g. acquisition,

construction, reconstruction). They are very often targeted by non-bank subjects who offer them

unfair loans. Unfortunately the result of that is the people are losing the property. We may

observe a lack of knowledge in this field. That is the reason why a significant part of the debt is

incurred by mortgage loans for housing; then they are bank consumer loans and non-bank loans.

Indebtedness of households doesn’t have to be assessed as a negative phenomenon, as they can

increase their consumption alongside uneven development of their incomes. While the level of

household indebtedness in relation to GDP in Slovakia is still satisfactory, it is assessed as being

high in relation to the financial assets.

Households have not been able to increase the profitability of financial assets for a long time, the

reason for which lies in certain models of households’ behaviour characterized mainly by

conservatism with strong orientation to cash and current or savings bank accounts.

So, why mention all this? Because of its close relation to financial literacy, for example, what

type of credit to accept, which institution to go for, how to behave in relationship with a credit

provider, which model of behaviour to follow, etc.

2.2 Financial literacy in selected countries and Slovakia

The term literacy encompasses many areas and is called using a general term functional literacy.

Functional literacy (Kirsch, 1986) is the ability to use printed and written material to fulfil one’s

different needs at home, to function in society, to achieve one's personal and professional goals,

etc., it is also a tool to broaden knowledge and develop one’s potential.

The components of functional literacy include e.g. health, institutional, cartographic, media,

emotional, cultural, digital literacy and, naturally, financial literacy which is the focus of our

attention in this paper. Financial literacy can be defined as the ability to use knowledge, skills and

experience of an individual to make effective decisions regarding the use and management of

their own finances to provide life-long financial security for themselves and their families.

Therefore, it means having an ability to understand basic financial products people deal with in

their everyday lives that considerably affect their economic situation and welfare. Whatever the

definition of financial literacy is, its importance is ever growing. The level of financial literacy

varies a lot across the EU.

Most educational systems in this field surveyed in Great Britain, Germany, Austria, Holland and

France. They are modern and provide high quality education. In spite of that in certain areas they

have proved to be inefficient. But situation in Eastern Europe is not the same. Poland is the most

active Member State in Eastern Europe in terms of financial education activities. Bulgaria,

Latvia, Luxemburg, Slovenia, Slovakia and Romania seem to be active but only in the areas

related to the EU multinational programs.

Evaluation of the 2004 survey showed a very low value of the level of financial literacy – the six-

point scale to the Quartet (the unit was excellent understanding of financial terms and their

adequate application in practice). The survey results also yielded interesting findings regarding

the status of financially literate people – are mostly elderly, have multiple higher incomes than

people financially illiterate, increasingly are married or married, have children and are the owners


Volume 3, Issue 1

January - June 2014


51

of a credit card and a bank account. Rarely pumped limit credit card and do not get into debt. The

survey confirmed the difference in financial literacy between men and women (Baláž 2006).

Research conducted in 2010 focused on the comparison of financial literacy EU Member States

identified 216 programs to improve financial literacy in the Member States. Most of these

programs are implemented in schools or universities. The main objective is to enable participants

to understand the nature of money and provide management information and financial planning.

An example of this type of system is Finanzführerschein (Financial Driving Licence) in Austria.

Generally, 25% of programs are targeted at low-income groups or Group of little education. Most

of them are conducted by non-profit associations or consumer protection bodies (e.g. Blijf

Positief in the Netherlands, Money and Help in the UK and My Finances in Poland). Bank rate

rating company regularly reviews financial literacy in the United States.

Those programs use typically multiple tools and channels for communicating their ideas:

- 48% use four or more channels/tools,

- 17% use six or more channels/tools (e. g, Finance & Education in France).

The most commonly used channels are websites, flyers/brochures, printed manuals and training.

Schemes are usually at the national or regional level within a country. This is understandable,

since a large part of the contents depend on the language. Very few programs are operating across

national borders (Hlavatý, 2011).

The survey are generally interested in the search of the most favourable mortgage interest,

understanding savings, monthly expenditure structure, the tax return, living fuses, functioning of

credit cards and the repayment obligations. The results of similar surveys in Japan indicated a

low level of financial literacy, while 57% of people do not understand how to use the financial

products, 29% of people have no knowledge of life insurance and 71% of the population cannot

deal with securities. In Australia 67% of respondents claimed they know what it is compound

interest. However, in presenting a concrete example just 28% respondents really understood what

is going on.

An example of financial education in the Czech Republic is an integration of it into school

curriculum. The main target groups for financial education are both the children and young

adults. At present one of the most important tools of financial education is the Internet. Another

fact is that every sixth system of financial education is operated by private providers of financial

services. The providers mostly focus on their customers; however, its contents remain

disinterested.

In Slovakia is situation very similar. There were several try to provide financial education within

the curriculum at the basic and middle schools for both the children and young adults. But results

were only partial, because only small part of topic was shared within civic courses (subjects) of

the curriculums. Like in Czech Republic the price for internet connection in Slovakia is low in

comparison to another EU countries (e. g. €15 per month for three play service (TV channels, IP

phone and internet) via optic cable or Wi-Fi receiver, or €8 per month access with no data limit

by mobile network providers). Another fact is that every sixth system of financial education

provided by any means is operated by private providers of financial services. The providers

mostly focus on their customers; however, its contents remain disinterested. The financial literacy

in Slovakia is agenda also for governmental bodies. Ministerial expert group developed draft

material on financial literacy in 2008. The group was created by experts from the Slovak Ministry

of Education, Science and Sports (further “MESSSR” only) and Slovak Ministry of Finance


Volume 3, Issue 1

January - June 2014


52

(further “MFSR” only). It prepared the document “The National standard of financial literacy

version 1.0”. The document determines the extent of knowledge, skills and experience in the area

of financial education and management of personal finances. Another active organisation in the

field of financial education is the Slovak Banking Association. It conducted a survey of financial

literacy of the Slovak citizens on a poll of 1107 respondents. The data were collected through on-

site face-to-face interviews in the respondents’ households by trained interviewers of the MVK

agency (Slovak reputable agency offering market research, media and public opinion). The

survey showed that there existed a relatively close relationship between the respondents’ real

level of financial literacy and their self-assessment. Respondents’financial literacy was lower

than level of self-assessment. The average index value of respondents’ financial literacy scored

by the survey was 0.56 points which reflected an average knowledge of personal finances.

In August 2012 „Partners Group” in cooperation with the Focus agency (another Slovak

reputable agency offering market research, media and public opinion) conducted a survey of

financial literacy among Slovaks (720 respondents over age 18). The data confirmed that the

level of Slovaks’ financial knowledge is the same problem as in many countries worldwide. The

questions were focused once again on basic financial knowledge in the area of economics and

finances based on common financial terms we deal with on a daily routine. According to this

survey the average level of financial literacy of Slovaks was 62.50%. The knowledge on

investments and bank products were identified as the weakest areas. Better results were obtained

in the areas of pensions and insurance. More than half of the respondents were not able to judge if

a loan was worth taking or not and did not know that the amount of gains was dependant on the

size of the risk.

Furthermore, over 70% had a problem to differentiate between various types of investments and

the risks associated with them and almost half of the interviewed people did not save absolutely

anything from their monthly salaries. Comparison of the results of surveys carried out in the year

2007 and 2012 shows that financial literacy has somewhat improved (scores rose from 56% to

62,5%) as well as the trend of financial education and more responsible approach of consumers

themselves. In spite of that fact the level of financial education in the Slovak Republic is below

European average (approx. 75%).

3. FINANCIAL LITERACY WITHIN COLLEGE STUDENTS AT DIFFERENT

SLOVAK UNIVERSITIES

We do believe that increasing of financial literacy in the future within the society may be

significantly influenced by the university graduates. They could simply share their knowledge in

this field with their family members, and people who will work for them. They also use very

often the communication and we may say in many ways educative channel we did not meant yet

very powerful system of the social networks. Spreading of information via this tool is very wide

and quick.

That is a primarily reason we do research and use extensive survey on the level of financial

literacy of college students. Once their score is high they could positively increase the knowledge

of majority of society. We search for student opinions by distributing questionnaires in the fall of

summer semester of academic year 2012/2013 under the supervision of the authors at selected

colleges in Slovakia. The targeted groups were student of major study fields in Economics and


Volume 3, Issue 1

January - June 2014


53

Management. Within the questionnaire we also tested the level of knowledge, or opinions on four

aspects:

a) Management of finances – to be able to develop a family budget and check income and

expenses categories;

b) Planning of financial income and expenses – to incorporate future needs, both expected and

unexpected, into the budget;

c) Choice of suitable banking products – every now and again to monitor products, analyse them

and choose the right ones to suit particular needs and circumstances;

d) Database of product providers – a consumer should be informed about the provider of the

service. He or she is interested in and under what circumstances it is possible to make a

request. What service package will the given to the customer by provider offer within a

particular category management.

We have distributed questionnaire within student at four universities. Respondents to a

questionnaire survey on the level of financial literacy of university students were as follows:

where the student has the opportunity to study Economics and Management:

1. University of Technology in Košice, Aeronautic Faculty (further “College 1” only): (59

Bachelor students and 25 Master degree students).

2. University of Technology in Košice, Faculty of Mining, Ecology, Process Control and

Geotechnology (further “College 2” only): (26 Bachelor students and 31 Master degree

students).

3. Catholic University in Ružomberok, Faculty of Education (further “College 3” only): (53

Bachelor students and 38 Master degree students).

4. University of Economics in Bratislava, Faculty of Business Economics in Košice (further

“College 4” only): (51 Bachelor students and 61 Master degree students.

3.1 Queries, primarily research outcomes and methodology

We organized questions in three parts, in which the students commented on the following areas:

Part 1 – Relationship to finance - questions from 1 to 6.

Part 2 – Knowledge - questions from 7 to 16.

Part 3 – Demographic - questions from 17 to 22.

We assumed the answers within Part 1 and Part 2 are the most important to financial literacy.

They provide factual material for conducting analysis and formulating solutions. Questions of

demographic circuit within Part 3 allowed us to get a better overview and efficient processing and

understanding the data obtained from respondents. The questions are as below:

Part 1:

1 What do you mean by financial literacy? (Please write your opinion)

2 What is your relationship to savings?


Volume 3, Issue 1

January - June 2014


54

3 What is your relationship to debt?

4 What is your relationship to insurance?

5 What is your relationship to invest?

6 Who is your adviser in managing own finances?

7 Which aims to increase living standards are important to you (sort by priority from 1-5)?

Part 2:

8 What mean the terms real and nominal pension?

9 What type of insurance is more appropriate for people who expect the insurance greater

stability and lower risk?

10 Can a limited liability company to provide consumer credit?

11 If the consumer repays the credit to the consumer prior to maturity, the creditor is entitled

to reimbursement of costs, namely:

12 Whichever is for you to decide on the loan authoritative?

13 When withdrawing cash from an ATM by debit card you need:

14 Deposit is:

15 Leases - leases generally mean:

16 When paying by credit card in a store or withdrawing funds from an ATM

Part 3:

17 Sex:

18 Age:

19 Form of study

20 Level of study

21 Specify the name of the city/town in which you study...

22 Indicate the name of the university, respectively college at which you are studying.

We provide variable answers in the columns from a to e in Table 2 (see appendix). We wrote

short form of variables answers within table columns. According to meaning of each question we

offered in some question 2, or 3, respectively 4, or 5, and for 2 questions 6 variable answers.

Data from the first part of questionnaire proved that the very concept of financial literacy was

understood by most students of all schools surveyed. For example open question 1: What do you

mean by financial literacy? The students showed lots of opinions that proved they have adequate

knowledge that generally correlate with its definition. 81% of respondents’ surveyed schools

have managed properly defined. There is also another open question 7: What are the goals of

increasing living standards are important to you (sort of priority from 1-5). The students most of

time marked responses: b, c, or e. It means they prioritized securing the future of their children,

secure their old age and an increase in income.

We provide correct answers on questions within part 2 of the questionnaire bellow. These

questions helped us to test students’knowledge. Proper answers are as follows: question 8 - b,

question 9 - a, question 10 - a, question 11 - a, question 12 - c, question 13 - b, question 14 - a,

question 15 - a, and question 16 - b.

We provide a collection of answers of bachelor studies in Table 2. Because of significant amount

of data we use in this article only data from bachelors students. We analysed data in order to find

solutions and recommendations to improve the state in financial literacy of university students,

and identify the fields for development. We did not include into Table 2 the answers for open


Volume 3, Issue 1

January - June 2014


55

questions. Even they are important the diversity is so significant and wide that it is not preferable

to use them for statistics. Further we did not include data on unique question 21: Specify the name

of the town in which you study. Answers on these questions helped us in data processing, but they

are not influencing the research results in the financial literacy field. The same we may say

regarding to question 22: Indicate the name of the university, respectively college at which you

are studying.

3.2 Results and findings based on elaboration of data from questionnaires

We processed the data from questionnaires. We compared occurrence variable answers on each

question from different colleges’ students. We have got numerous variations that do not allow us

to explore all of them in this article. We explain further steps on example of data for the 2nd

question obtained from bachelor students. In Table 3 (see appendix) we provide the percentages

of variable answers.

We show graphical visualisation of percentages of variable answer on question No 2 in Graph 1

(see appendix) like an example of comparing the data. The students from three colleges have the

like percentage for 3 variable answers. Only students from University of Economics in

Bratislava, Faculty of Business Economics in Košice (see light blue coloured x line) answered

this question with significant difference. Their charged variant a) “I do not know how, or not able

to save” 7 more times than students of 2 others colleges. If we look at variable answer d) “I

always put aside some part of income and I live from what I remain” of 2nd

question (see Table 2.

4th line 5th

column) we observe similar percentage appearance of this variable answer. Maximum

difference between colleges is 9.5%. This is an example how we found out in states, similarities

and bigger differences between colleges’ students financial literacy.

We may closely look to Table 2. and to see differences in answers and evaluate percentage and

also ratio differences between colleges. We show in Table 4 (see appendix) an example of

variable answers on question No 2 “What is your relationship to savings?”. Significant

correlation 0,90 is between answers from students of Catholic University in Ružomberok, Faculty

of Education and students of Technical University in Kosice, Faculty of Aeronautics.

When we have had been solving the correlations of answers on Question 3 “What is your

relationship to debt” we found the strongest answers correlation 0,98 between 2 colleges from

Technical University in Kosice, Faculty of Aeronautics and Faculty of Mining, Ecology, Process

Control and Geotechnology. Majority (47.5% students) be aware of debt. 36,2% of students loan

only if it is necessary. Question No 4 “What is your relationship to insurance” was answered

with high correlation 0,99 again between 2 colleges mentioned above. Substantial majority 60.1%

students insure themselves for secure of unexpected situation. Also question No 5 “What is your

relationship to invest” was answered with the highest correlation between 2 colleges mentioned

above. Testing confirmed correlation coefficient 0,73. Students on average 44.2% of them invest

of non spent income. If we want learn more details for example in the student managing own

finances we followed answers on question No 6: Who is your adviser in managing own finances”

High percentage of student within colleges (e.g. from 25.4% to 34.6%) in average 29.8% tries to

find information from non/depended bodies. We may observe wider scale of students’ intent in

finding recommendation from financial institution (e.g. from 20.3% to 38%) in average 28.2%.

Surprisingly for us students prefer rather information from media (e.g. from 17% to 34%) in

average 26.8% then friend’s references (e.g. from 5.9% to 20.3%) in average 15.1%. After the

evaluation and comparisons of variables from the entire questions we search for significant


Volume 3, Issue 1

January - June 2014


56

correlations between colleges. The highest correlation 0,87 is between students from Catholic

University in Ružomberok, Faculty of Education and University of Economics in Bratislava,

Faculty of Business Economics in Košice. Question No 7 “Which aims to increase living

standards are important to you (sort by priority from 1-5)” was comparatively answered by

students from 2 colleges mentioned above with correlation 0,79. The most students (in average

37.7%) want a provision for older age. On question No 8 “What mean the terms real and nominal

pension” we got highest correlation 0,99 between students of Catholic University in

Ružomberok, Faculty of Education and Technical University in Košice, Faculty of Aeronautics.

On average 56.3% answered that is the real income, which for a given amount of money can buy,

the nominal pension expressed in monetary terms.

Following questions with just two variable answers we did not examine for correlations. Question

No 9 “What type of insurance is more appropriate for people who expect the insurance greater

stability and lower risk” was answered by 65.7% students in favour of capital insurance and rest

of them for investment insurance. Question No 10 “Can a limited liability company to provide

consumer credit?” majority 62.9% students properly answered that there is not a possibility to

obtain consumer credit from L.td. enterprises. Question No 11 “If the consumer repays the credit

to the consumer prior to maturity, the creditor is entitled to reimbursement of costs, namely”

majority of students 66% answered properly that amount of compensation cost may not exceed 1

% of the paid-up consumer loan before maturity. On question No 14 “Deposit is” majority 68.7%

students properly answered that deposit to be paid before the goods or services. Question No 17

“Sex:” provide for us interesting findings. 63.5% of respondents were girls and 36.7% boys. The

majority of all respondents within all of the colleges were girls. Question No 16 “When paying by

credit card in a store or withdrawing funds from an ATM” majority 59% students properly

answered: the credit card holder used his/her own funds as in the case of debit cards. Question

No 18 “Age” confirmed that majority 90.2% students are aged from 18 to 23 years. The most

students 96.1% in this age study at the Technical University in Kosice, Faculty of Aeronautics.

Question No 19 “Form of study” 100% students answered full time study at all of the colleges.

Answers on question No 20 “Level of study program” was 100% bachelor level of study from all

of the colleges. The answers on these questions clearly stated the percentage of proper or

preferred answers. In other words the answers declare financial literacy indexes.

Question No 12 “Whichever is for you to decide on the loan authoritative?” was comparable

answered with correlation 0,96 by 2 colleges from Technical University in Kosice, Faculty of

Aeronautics and Faculty of Mining, Ecology, Process Control and Geotechnology. There are

36.5% students who favour interest rate in questioning on decision the loan authoritative.

Question No 13 “When withdrawing cash from an ATM by debit card you need” was answered

with high correlation 0,99 between, in this case, 3 colleges: Catholic University in Ružomberok,

Faculty of Education, Technical University in Kosice, Faculty of Aeronautics, and University of

Economics in Bratislava, Faculty of Business Economics in Košice. Majority 96.8% students

answer properly that for withdrawing cash from an ATM by debit card they need PIN code.

Students answered question No 15 “Leases - leases generally mean” with high correlation 0,96

between students of Catholic University in Ružomberok, Faculty of Education and Technical

University in Košice, Faculty of Mining, Ecology, Process Control and Geotechnology. Majority

52% students answered question Leases - leases generally means the form of credit.


Volume 3, Issue 1

January - June 2014


57

4. IMPROVING THE LEVEL OF FINANCIAL LITERACY

We found out that the most of correlations occurred 4 times (for questions 3, 4, 5, and 12)

between 2 colleges of Technical University in Košice, Faculty of Aeronautics and Faculty of

Mining, Ecology, Process Control and Geotechnology. Then 2 times (for questions 2, and 8)

between students of Catholic University in Ružomberok, Faculty of Education and students of

Technical University in Kosice, Faculty of Aeronautics and 2 times (for questions 6, and 7) also

between Catholic University in Ružomberok, Faculty of Education and University of Economics

in Bratislava, Faculty of Business Economics in Košice. We observed just 1 time of the highest

correlation between answers for question 15 between Catholic University in Ružomberok,

Faculty of Education and Technical University in Košice, Faculty of Mining, Ecology, Process

Control and Geotechnology. We observed the highest correlation on question 13 between 3

colleges University of Economics in Bratislava, Faculty of Business Economics in Košice,

Technical University in Kosice, Faculty of Aeronautics, and Catholic University in Ružomberok,

Faculty of Education). We did not find highest correlation between Technical University in

Košice, Faculty of Aeronautics and Faculty of Business Economics in Košice and between

Technical University in Košice, Faculty of Mining, Ecology and University of Economics in

Bratislava, Faculty of Business Economics in Košice.

Our evaluation of level of the knowledge on financial literacy between university students proved

that they have to be prepared for present EU strategy that identifies a vision for the next decade

based on three driving forces of economic growth: smart growth (support development of

knowledge, innovation, education and digital society), sustainable growth (resource efficiency

and promoting a competitive low – carbon economy), and inclusive growth (raising employment

rates and poverty reduction). At EU level, considering the five main objectives that Member

States will have to be translated into national targets: employment indicator (employment rate of

the population aged 20-64 years is expected to reach 75%), funding research and development

(level of investment in science and research should reach 3% of GDP) targets on climate and

energy (should reach 20-20-20) ; area of education (reducing the proportion of people who leave

school early and increase the number of people with university education); area poverty (the

number of people at risk of poverty) (Europe 2020, p. 5).

As part of the strategy and its momentum “smart growth” is the task of us all enhance the level of

financial literacy. For the system of education in this area functional, it is necessary that training

covered all market segments and target groups. The way in education of people by university

graduates is very effective and brings the knowledge within the relatives and future subordinates.

This is an advantage in comparison with the official channels who address mainly primary and

secondary schools. The graduates should be effective in sharing the knowledge within elderly

(senior age people), or socially disadvantaged families, because these segments are perhaps the

most affected. As can be seen from the surface of the demographic development in Slovakia (the

population is projected to decline to 4.8 million people by 2050 from the recent 5.42 million

inhabitants), the consequences are fatal (e.g. retirees will not be able to rely on their welfare

state), so be it “today” to begin the process of financial education. As for low-income families,

they are given the reliance on consumer loans where no collateral is needed, getting into a debt

spiral. Most of the inhabitants of this group are not able to responsibly assess their financial

capabilities.


Volume 3, Issue 1

January - June 2014


58

Students should be able to develop a family budget and check income and expenses categories;

incorporate future needs, both expected and unexpected, into the budget; monitor products,

analyse them and choose the right ones to suit particular needs and circumstances. The consumers

generally should be informed about the provider of the service and under what circumstances it’s

possible to make a request and what service package will the given provider offer within a

particular category management.

Apart from these indicators we recommend to master the relationship between the necessaries of

life and finances, learn basic ethical relationship between wealth and poverty, understand the

issues relating to an individual and family in the economic sphere, learn what it means to live

economically as well as to understand the term risk and be able to identify its basic types. By

educating a person in the above-mentioned areas, he or she will be able to acquire competencies

essential for financial literacy such as:

- Be able to assess life’s priorities and determine basic resources to provide the necessaries of

life,

- Have the competency to differentiate between reliable and unreliable information about

decision-making processes in the financial area,

- Have competencies to manage finances,

- Have the competence to organize personal finances, use the budget, and borrow money with

the lowest risk rate as well as to assess directions of investment.

5. CONCLUSION

Financial literacy is not an absolute state even within university students. It is a continuum of

abilities that are subjects to variables such as age, family, culture, education, business, and

residence. They refer to an evolving state of competency that enables each individual to respond

effectively to new personal events and ever-changing economic environment. In today’s modern

world it plays an important role being a gate pass to education, ability to gain and process

necessary information or deal with a variety of other everyday life issues. The results of our

surveys show that the level of knowledge and expertise in this area is above an average. They

become the sources for sharing it within the society. Besides having the right to access

transparent information, it is also a person’s responsibility to get familiar with it as well as to

transform it into their day-to-day life. University graduates may be of hand in this effort. Even

though various institutions are interested in educating clients in this area, the ability to make

a correct choice among a new wide range of products and services offered by a whole lot of their

providers as well as their implementation in practice depends to a great extent on consumer‘s

motivation to train. University students may significantly motivate their relatives, subordinates

even people from marginal groups in starting the process in getting better in financial literacy.

ACKNOWLEDGEMENTS

The paper is part of the theoretical basis of the scientific project VEGA No 1/0474/12 Financial

literacy of undergraduate students in Slovakia. Currently, an extensive survey aimed at

determining the level of financial literacy of undergraduate students was conducted at higher


Volume 3, Issue 1

January - June 2014


59

educational institutions in Slovakia with focus on the study fields of economics and management.

Its results will be disseminated through conferences and in world renowned journals.

REFERENCES

Baláž, V. (2006). Finančná gramotnosť je slabá : Čo všetko človek (ne)vie o svojich peniazoch?

In Investor: sprievodca vo svete financií. Bratislava: FOND SHOP, marec 2006, roč. 7, č. 3, s.

33-35.

Čarnogurský, J. (2011). Polícia otáča? [online]. [Cited 11.01.2013]. Retrieved from:

http://blog.aktualne.centrum.cz/blogy/janarnogursky.php?blogid=164&archive=2011-02

Hlavatý, I. (2011). Podpora finančnej gramotnosti v krajinách EÚ. Finančná gramotnosť ako

súčasť ekonomického vzdelávania. Zborník príspevkov z medzinárodnej vedeckej

konferencie. Bratislava, NHF EU, s. 47-50.

Huston, S. J. (2010). Measuring Financial Literacy. Journal of Consumer Affairs, Special Issue:

Financial Literacy, 44(2): 296–316.

Kirsch, I. S. (1986). Literacy profiles of America´s young adults. Research paper. Princeton NJ:

Educational Testing Service.

Kubátová, K. (Ed.) (2011). Verejné finance a monetární politika v EU a jejich vliv na

mezinárodní podnikání. Praha: MATFYZPRESS, 2011. 119 s. ISBN 9788073781118.

Lusardi, A., Mitchelli, O. (2007). Financial literacy and retirement preparedness: Evidence and

implications for financial education. Business Economics, 42(1): 35-44.

ŠTÁTNY INŠTITÚT ODBORNÉHO VZDELÁVANIA. (2008). Národný štandard finančnej

gramotnosti. Retrieved 11.01.2014: http://www.siov.sk/narodny-standard-financnej-

gramotnosti-bwd/16534s.

Obadi, S. H., Brzica, D., Bujňáková, T., Hošoff, B., Hvozdíková, V., Pauhofová, I., Staněk, P.,

Šikula, M., Šikulová, I. & Vokoun, J. (2011). Vývoj a perspektívy svetovej ekonomiky.

Spomalenie rastu a vysoká nezamestnanosť. Bratislava: Ekonomický ústav SAV, 261 s. ISBN

978-80-7144-185-4.

Pastoráková, E. (2011). Výzvy a prekážky finančnej gramotnosti v oblasti poisťovníctva. In:

Finančná gramotnosť ako súčasť ekonomického vzdelávania. Zborník príspevkov z

medzinárodnej vedeckej konferencie. Bratislava, NHF EU, s. 128-132.

Poštová Banka. 2013. Zadlženosť slovenských domácností je v rámci eurozóny najnižšia.

Retrieved from http://www.postovabanka.sk/sk/o-nas/analyzy-trhu/zaujalo-nas/zadlzenost-

slovenskych-domacnosti-je-v-ramci-eurozony-najnizsia

Slovak Banks‘ Association (2007). Finančná gramotnosť slovenského spotrebiteľa. Retrieved

from: http://www.sbaonline.sk/files/subory/analyzy/verejne/fingram-IFIG.pdf

Sovics, P. (2012). Quo vadis finančné vzdelávanie? Retrieved from:

http://www.nbs.sk/_img/Documents/PUBLIK_NBS_FSR/Biatec/Rok2012/1-2012/02_biatec

12-1_szovisc.pdf


Volume 3, Issue 1

January - June 2014


60

Zarcadoolas, C., Pleasant, A. F., Greer D. S. (2006). Advancing Health Literacy: A Framework

for Understanding and Action. San Francisco: Jossey-Bass.


Volume 3, Issue 1

January - June 2014


61

APPENDIX

Table 1. Household debts in relation to GDPs

Country/year

2011

Loans to

households

(bill. EUR)

Public debt of the

country

(bill. EUR)

Loans to

households/GDP

(%)

Public debt/GDP

(%)

Slovakia 17.2 29.9 24.9 43.3

Slovenia 9.5 17.0 26.7 47.6

Belgium 108.5 361.7 29.5 98.2

Italy 618.6 1,897.2 39.1 120.1

Estonia 7.0 1.0 43.8 6.0

Austria 144.0 217.4 48.0 72.4

France 1,069.2 1,717.3 53.6 86.0

Germany 1,435.8 2,088.5 55.9 81.2

Finland 110.0 93.0 57.4 48.6

Greece 127.6 355.6 59.3 165.3

Malta 4.0 4.6 62.2 71.6

Holland 419.3 392.5 69.6 65.2

Ireland 112.7 169.3 72.0 108.2

Luxemburg 33.5 7.8 78.2 18.2

Spain 859.7 735 80.1 68.5

Portugal 140.6 184.3 82.3 107.8

Cyprus 23.9 12.7 134.6 71.6

Euro zone 5,241.1 8,215.3 55.7 87.3

Source: Eurostat, ECB, calculations of Poštová banka


Volume 3, Issue 1

January - June 2014


62

Table 2. Answers on questions from bachelor students of 4 colleges.

Question No/

Answers a) [%] b) [%] c) [%] d) [%] e) [%]

2 (savings)

average value [%]

do not now

Φ 11.4%

just in short time

Φ 33.4%

just for long term

goals Φ38%

put aside part of

income Φ 13.9% -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 5.1 0 5.1 35.3 40.7 23 40.7 29.5 41 54 40,7 16.9 13.5 23 13.5 15.6

3 (debt)

average value [%]

loan the money

Φ 8.9%

loan only if it is

necessary Φ 36.2%

beneficial interest

Φ 8.9%

Never

Φ 47.5% -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 6.8 0 7.5 21.6 27.2 30.7 38 49 5.1 7.7 7.5 15.6 60.9 61.5 47 13.8

4 (insurance)

average value [%]

waste of money

Φ 15.2%

bad experience

Φ 12.2%

use insurance

Φ 12.4%

secure unexpected

situation Φ 60.1% -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 8.5 7,7 15.1 29.5 6.8 3.8 18.8 19.6 17 7.7 9.4 15.6 67.8 80.8 56.6 35.3

5 (investment)

average value [%]

never, afraid of loose

Φ 25.7%

bad experience

Φ 14.1%

invest of not spent

income Φ 44.2%

invest 10 % of

income Φ 20.5% -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 45.7 30.7 20.7 5.9 5.1 16.6 15.1 19.6 39 38 60.4 39.2 1.2 14.7 30.7 35.3

6 (managing own

finances)

friend’s advice

Φ 15.1%

information from

media Φ 26.8%

advice from finance.

institution Φ 28.2%

non/depended bodies

information Φ 29.8% -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 20.3 19.2 15.1 5.9 34 26.9 17 29.5 20 19.2 38 35.6 25.4 34.6 29.9 29.5

7 (aims to

increase living

standards)

ensure or improve

housing Φ 2.1%

ensure the future of

children Φ27.6%

shall provide for old

age Φ 37.7%

ensure against loss of

income Φ 2%

increase revenue

Φ 32%

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 1.9 2 3 1.4 25.1 29 28 28,6 40 38 37 36 1.9 1 2 3 31 33 30 34

8 (terms real and

nominal pension)

regards synonyms

Φ 4.7%

is the real income

Φ 56.3%

expresses nominal

pension Φ 38.7% - -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 1.7 5.7 11.5 0 49.1 45.3 69.2 62.7 49 49 19.2 37.3

Questions/

Answers a) [%] b) [%] c) [%] d) [%] e) [%]

9 (kinds of

insurance)

capital insurance

Φ 65,7%

investment insurance

Φ 36.2% - - -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 74 76.9 43.4 68.7 26 23.1 56.6 31.3

10 (possibility of

consumer credit

from Ltd.)

yes

Φ 45,2%

not

62,9% - - -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 36 36.5 37.7 70.6 64 61.5 62.3 64

11 reimbursement

cannot exceed 1%

Yes

Φ 33.9%

not

Φ 66% - - -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 22 11.5 47.2 55 78 88.5 52.8 45

12 which loan factor

your favour

interest

Φ 36.5%

fees

Φ 15.3%

the measure of

Φ 17%

payback time

Φ 16%

other (please

specify) Φ 2.1%

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4


Volume 3, Issue 1

January - June 2014


63

[%] 60 61.5 47.2 29.5 15 11.5 7.50 27.5 17 15.4 5.7 29 1 11.6 39.6 11.8 6.9 1.7

13 (to withdraw

from ATM by debit

card you need)

PUK code

Φ 0%

PIN code

Φ 96.8%

PAN code

Φ 5.2% - -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 0 0 0 0 85 100 94.3 100 15 0 5.7 0

14 (Deposit is)

average value [%]

deposit to be paid

before the goods or

services Φ 68.7%

the first instalment of

the loan Φ 30.8% - - -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 66.1 73 90.5 45 33.9 27 9.5 55

15 (Leases) Lease Φ 42.5% Credit form Φ 52.1% buying a car Φ 5.3%

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 22 65.4 37.7 45 71.1 34.6 52.8 50 6.9 0 9.5 5

16 (paying by credit

card)

client financial means

Φ 59.1%

client does not use

own finance Φ 40.9% - - -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 73 61.5 52.8 49 27 38.5 47.2 51

17 (Sex) male Φ 36.7% female Φ 63.5%

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 43 26.9 37.7 39.2 57 73.1 62.3 60.8

18 (Age 18–23 yrs. Φ 90.2% 24–28 yrs. Φ 5.5% 29–33 yrs. Φ 2.4% 39–50 yrs. Φ 2.5% over 50 yrs Φ 1%

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 83 96.1 87.7 94.2 5 3.9 5.7 5.8 2 2 5.6 5 5 2 2

19 (Form of study) (full time) Φ 100% - - - -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 100 100 100 100 0

20 (Level of study,

where?) (Bachelor) Φ 100% - - - -

Colleges 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

[%] 100 100 100 100

Source: own processing


Volume 3, Issue 1

January - June 2014


64

Table 3. Percentages of variable answer on question No2.

Question No2 What is your

relationship to

savings?

I do not know

how, or not able

to save

a) [%]

I save only for short

periods and then I

spend my savings

b) [%]

I can also save

on durable

targets

c) [%]

I always put aside

some part of

income and I live

from what I remain

d) [%]

[1] Technical

University in

Kosice, Faculty of

Aeronautics Bc.

level TU FA (Bc.)

5,1 40,7 40,7 13,5

[2] Technical

University in

Košice, Faculty of

Mining, Ecology,

Process Control

and Geotechnology

Bc. level TU

FMEPCGT (Bc.)

0 23 54 23

[3] Catholic

University in

Ružomberok,

Faculty of

Education Bc. level

CU FE (Bc.)

5,7 57 34 3,3

[4] University of

Economics in

Bratislava, Faculty

of Business

Economics in

Košice Bc level UE

FBE (Bc.)

35,3 29,5 19,6 15,6



Volume 3, Issue 1

January - June 2014


65

Graph 1. Percentage of students’ variable answers on question No 2 “What is your relationship

to savings?”


Table 4. Correlations between answers on question No 2“What is your relationship to savings?”

[1]

TU FA (Bc.)

[2] T

U FMEPCGT (Bc.)

[3]

CU FE (Bc.)

[4]

UE FBE (Bc.)

[1] TU FA (Bc.) 1

[2] TU FMEPCGT (Bc.) 0,769738711 1

[3] CU FE (Bc.) 0,90552193 0,4265723 1

[4] UE FBE (Bc.) -0,222427656 -0,674348995 0,14593104 1


0

10

20

30

40

50

60

Percentage of

Answers

CU FE Bc

TU FMEPCGT

Bc

TU FA Bc

UE FBE Bc




January-June 2014


66

Analyzing Place Boundaries

Using the Service Science Paradigm

Luca Carrubbo

Ph.D., University of Cassino and Southern Lazio, Dept. Economics and Law, Cassino, Italy


Roberto Bruni

Ph.D., University of Cassino and Southern Lazio, Dept. Economics and Law, Cassino, Italy


Emanuela Antonucci Ph.D. student, University of Cassino and Southern Lazio, Dept. Economics and Law, Cassino,

Italy


Submitted: January 11, 2014 / Accepted: June15 2014 / Published online: June 16, 2014.


ABSTRACT

This conceptual work uses the place marketing theory, the service science paradigm and the

network theory to analize the “place” boundaries in a place marketing system.

Can a marketing-oriented place—one that works on a marketing plan, with an acknowledged

place brand that improves its intangible asset and relations with stakeholders—be identified

through its administrative boundaries? We think that this stance may indeed be constrictive, and

we argue that a marketing-oriented place has variable boundaries over time.

Place is something out of administrative boundaries; place could be a system of cities (or a

system among "parts" of cities) linked through a value proposition and a new positioning with a

marketing strategy. In this way the "place" is the system of territories not only the sum of the

cities. To define the concept of "marketing oriented" place we use the place marketing theory and

we argue that the boundaries of this place are identifiable by the relations among the system

elements and by the value perception of the place actors . We use the service science paradigm to

understand the role of relations among the system elements and the network theory to analize the

role of the relation intensity among the actors in the system.

Here we argue that, in places with different levels of intensity and natures, there are infinite

relations; through the identification of macrocategories of relations (i.e., the relevant clusters of

service science), it is possible to give a first-level definition of place boundaries (the macrolevel

of the definition), while more defined edges can be identified through the measure of the relation

intensity (which are variable in time and barely measurable with the network theories).

Keywords: place marketing, service science, place boundaries, value co-creation, smart service

systems.


Volume 3, Issue 1

January - June 2014


67

1. INTRODUCTION

This paper analyzes limitations in the identification of the boundaries of marketing-oriented

places using, for the first time in literature, the approaches of Place Marketing, Service Science,

and Network Analysis; it is a new approach that uses three theories to understand the meaning of

three basic concept of the marketing oriented place development (by “place” we mean the role of

relations among the elements of the place-system and the role of the intensity of the relations in

the system). In this work, we argue that it is possible to define the boundaries of a territory

through an analysis of the perception of value by the primary stakeholders of the territory, and

with conceptual processes.

A marketing-oriented place can create value that may be perceived by the stakeholders of the

place through a process that cannot be “forced”, but which can only be “stimulated”, and led to

the recognition on the part of those who should perceive it. The marketing-oriented place is

defined only where it is possible to recognize and share value that come from the marketing

strategy. An area where it is impossible to perceive the process of value creation cannot be

included in a marketing-oriented place, independently of its inclusion in an administrative

boundary. It is therefore argued in this paper that marketing-oriented places have variable

boundaries based on the perception of the value, as recognized by the stakeholders, and on the

ability of the local government to successfully implement marketing strategies. The main

difficulties in identifying the boundaries of the place are in the analysis of type (with the support

of the paradigm of service science) and in the intensity of relations (with the support of network

analysis) between the actors of the place.

2. PLACE CONCEPT AND PLACE MARKETING

The aim of this research is to define the concept of place. It is possible to define place in many

ways and with different variables of interpretation involving the generic observer, the researcher,

the governance, the residents, investors, tourists, and casual visitors.

Defining a site as the tangible aspects and considering intrinsic intangible assets such as culture,

tradition, and knowledge to include the perception of visual and material assets allows us to

study the “place” in line with a systemic approach connected with the reality and the

environment in which it is located. Some contributions to the research literature have focused on

so-called "third places" as a concise representation of environments and spaces that are neither

workspaces nor dwellings (with a low level of quality of life), but possess the characteristics of

being familiar and cozy (Oldenburg & Brissett, 1982), of arousing in people a sense of comfort,

of being psychologically soothing, and, especially, inducing a sense of freedom (Glover & Parry,

2009) and democracy. In such third places, people come together voluntarily and informally in a

place that is considered “neutral”, with no formal barriers or hierarchy. In these places,

individuals feel united by the desire to socialize free from formalities or codes of compliance,

and to employ self-determined practices. This category includes restaurants, sports stadiums,

libraries, and other facilities, including even virtual environments (Soukup, 2006).

Some authors (Augee, 1993) talk about placelessness or “nonplaces”— areas that do not have

historical or relational aspects of identity and which are without cultural, historical, and

experiential significance. Relph (1976) also discussed “nonplaces” and, in defining the concept of

placelessness, says that when the governance of the place does not improve, or does not


Volume 3, Issue 1

January - June 2014


68

understands the distinctive characteristics of the space, then the place may become a standardized

reality unable to express these distinctive values. In any case, even “nonplaces” (Augee, 1993)

over time may become places, if we consider the construction, over time, of histories, cultures,

images, and situations that are capable of characterizing a position or a particular image in the

mind of the consumer or visitor. It can also be said that the identification of a space as “place” or

“nonplace” cannot be conceived a priori, but must constantly be derived by monitoring the

elements that constitute the substrate area and the tendency towards the generation of spatial

agglomerations (mainly in nonurban areas). The nature of a place is strongly influenced by the

governing of the place; it should be possible to develop a strategy based on the real possibilities

of development and on the full integration of the design and implementation of actions for the

economic and social development of the place.

Governance and strategic management identify the trends and the perimeter within which to

define their work and to propose their own specialization, by identifying one or more models of

management and government relations (Kearns & Paddison, 2000). It is useful to study a

strategic plan that allows the integration of multiple subjects involved in the study and the

management of the phenomenon of “place” (Maktav, Erbek & Jürgens, 2005), and also to

identify the models of participative metamanagement that are necessary for a systemic vision of

the vital places. The place marketing approach is considered to be complex, and continues

evolving on the international level through the variety and variability of the object of study

identified in the place (complex and variable entities), in place governance (for some projects, in

public or public-private governance), and in the place’s stakeholders (subjects interested in the

place and in its evolutionary trends, such as inhabitants, tourists, and internal and external

investors). The literature of the 1990s presented place marketing as a tool for promoting

competition between places (Ashworth &Voogd, 1990; Kotler et al., 1993; Borchert, 1994), but

research has subsequently focused on the relevance of the strategy in the marketing process and

on the relationship between strategic planning and the value generated in the place.

The marketing approach to the place has identified principles and schemes of multidisciplinary

reference, including the contributions of Moore (1995), which attribute to place marketing the

role of a “tool” for studying the dynamics of exchange between the primary stakeholders inside

the “place as an object”—as a public good. This “tool” can obtain public value targets without

generating profit, resulting in the purpose of creating value. One of these elements determines the

ability to believe that place marketing contributes to improving the quality of life of the citizens

and primary stakeholders. To define this path, the place must have goals to be achieved, a

governance strategy, measuring instruments, a specific positioning in the “market”, and reference

elements for differentiation. The ownership of place is the community that lives and deals with

the development of those places, providing the same place of governance (i.e., public

administrative bodies); residents are on one hand part of the clients of the territory, and on the

other hand the owners, who can vote to define governance.

The primary objective of the place (and thus of the governance of the place) is the satisfaction of

residents (the local community). The similarities with the company system are difficult to

maintain, because the large number of simplifications in the interpretation is high, and territorial

reality undergoes competitive forces which are named in a different ways, depending on the time

at which we make our analysis and on the relationship they have with local stakeholders. The

place “subject” is a complex and dynamic entity (Carrubbo, 2013); a necessary interpretation in

“viable” place marketing therefore contributes to value creation in territorial areas, and primarily


Volume 3, Issue 1

January - June 2014


69

for the primary stakeholders (local companies and residents), with the aim of facilitating

improvement in the quality of life through the development of knowledge and cultural

fertilization, which increases the chances of managing the territory with a view to marketing and

to initiating cooperative processes between geographical areas.

In recent years, the focus of studies of place marketing focused on the critical management of

places (in particular, the concept of “place management” has had a particular consideration in the

case of all activities of place organization and management). Place management is a management

model that considers an integrated approach to places, and not only to central places. Stuart-

Weeks (1998) and Walsh (2001) defined the theoretical and practical approach to the

management of the “place” with that synthesis: place management is “the process of making

better places”. It is an interdisciplinary approach led by a mix of contributions, behaviors,

professionals, actions and plans: the study of social relations, the impact of urban interventions,

the actions of local authorities, the reactions of the resident population to urban development

plans, and the designs of urban specialists. This approach is in line with place marketing, and is

based on the centrality of the development of the area to improving quality of life, with specific

attention on sharing interventions with the greatest number of local stakeholders. Marketing

strategy and operational management must this be integrated with the human capital present in

the territory (Polese, 2005) (the synthesis between relational capital, such as experience,

knowledge, skills, and relationships, of the individuals who “make the place vibrant”, such as

administrators, businesses, and residents). In a way, this decreases the distance between those

who plan and those who transform theory into practice every day, keeping alive traditions but, at

the same time, realizing the process for value creation and sustainable growth in the area. It is

possible to develop value cocreation with codesign, while sharing the common pathways in all

stages of the place development strategy. Worldwide best practices emphasize that public-private

partnerships in which knowledge plays a key role in the process of sharing the joint project are

the best managerial and organizational models for stimulating cocreation of value. This

knowledge allows the diffusion of techniques, design, methodologies, and implementation

controls that turn theory into practice and strategy into results; these processes are part of place

management.

2.1 Relations and value creation in Place Marketing strategies

In making relations active in a place, it is possible to understand whether at a given moment a

process of value creation is active in that place. We call activated relations in time “interactions”

(Golinelli, 2010). Marketing-oriented planning and knowledge increase the opportunities for

relations between assets and place management, but there are specific elements capable of

activating relations (drivers) and starting the value-creation process.

Value generation strengthens the place’s management competences, and also the resources and

knowledge that can attract ability from elsewhere, sometimes creating strong synergies capable of

allowing the integration of different places through the sharing of projects, research, and

development agreements.

Sometimes in places it is possible to find many assets, both tangible and intangible (Raimondi,

2005), which are rarely used due to a lack of enabling relations in support of central governance;

in this case, the role of the “driver” in the place is relevant. The assets are the resources of the

place which could, in fact, be inactive in the process of creating value, but which can be activated

by the “driver”.


Volume 3, Issue 1

January - June 2014


70

Considering the important and most typical assets of places (knowledge, culture, environment,

nature, and structures and infrastructures of relevant interest) and their ability to generate value, it

can be argued that they would not have their effects if it were not for the relevant and qualified

drivers capable of enhancing the system-territory and stimulating the work of the asset (thinks of

universities, research centers, promotion agencies, contractors involving the territory, and

stimulators of development and investment).

The value-creation process comes from the relational network, and actively involves policy

makers and those who have an interest in the development of the place; the activation of

relational contacts in economic activities between companies starts for convenience, for company

necessity (for example, a commercial project, an expansion planning, etc.) (Gummesson, 2004),

or for weak reasons; the relations are more or less intense depending on the interests that

individuals have in keeping in contact. Interest is likely to be strong in cases of economic

efficiency that involve the company’s survival. The situation is different when the place

stakeholders need to activate relation in order to obtain a common benefit and promote collective

development (Polese & Minguzzi, 2009). Several elements lead economic actors in the territory

to classify active relationships of minor importance to the development and growth of local value.

Policy makers identify common goals (place goals) to achieve, as well as the strategy and phases

of management (through project management) needed to unite the place network and to build

value and engage the economic actors to cooperate in the collective interest, on the one hand

attempting to promote binding laws and penalties, while on the other offering incentives (soft

loans, rules for network promotion, etc.).

The value of the genius loci in their research: authors have highlighted the relevance of

intangibles in the process of socioeconomic development. The economic and industrial problems

of a place can be overcome through this “category suspended halfway between the moods,

beliefs, heritage, attitudes, and the imprint of history, but capable of mobilizing the resources and

turning everything into an element of development”. The OECD defines governance as the

process by which citizens use the government as a tool for collective problem solving and for

finding solutions to the needs of society (OECD, 2000). In areas characterized by place

governance that is quite open to place development and cooperation between public and private

sectors, it is possible to find the development and evolution of the economy and society only as

the bottom-up model (based on private initiatives) and through the intrinsic value of the abilities

of the territory (genius loci) (Camagni, 1991). Regarding this, Cresta (2008) cites the analysis of

Balloni and Trupia.

As with the concept of genius loci, in order to maximize the contribution of each actor in value

creation, the highlighting of relations among the stakeholders should become relevant. We

believe that the place should offer the right stimuli to the aggregation: the freedom to hope, think,

and act without constraints, in addition to the “rules”. This applies both to stakeholders and to the

governance that moves away from coercion, corruption, criminality, and strategic constraints

capable of leading in the shadows.

In some Italian regions, for example, the genius of local and interactive capability can be blocked

by negative and coercive elements, which have now acquired directly relevant and distinctive

local economies, multiplying the already difficult global market conditions. These factors

constrain development, they slow down the process of change and limit investment from

investors from outside the territory. Public governance operates slowly and organizational

activities in the area are reduced to the limited control of the activities performed by individuals,


Volume 3, Issue 1

January - June 2014


71

licensure, and the blockade of the strategic activities of development with consequent

impoverishment of the process of value creation. Some research suggests that criminal

organizations select the places in which they operate by establishing where the intervention of the

governing body is weak. In this sense, Felson (1987) demonstrated the key role of places using

routine activity theory, surpassing the previous vision of places geographically defined as a

material space in which subjects met, and arguing that the territory can provide benefits,

opportunities or threats to criminal organizations when governance is weak. It is very common, in

fact, that the influence of criminal organizations causes governance to not act freely in its

activities and to pursue personal goals and interests, all of which can limit continued action in

time for the government and, in the case of restoring law, may apply dissolutions of local

authority (municipality, province, district,...) (Rose, 1996).

These measures are among the main elements that impair economic development and spatial

planning. In a strong place network, there exist activated relations between stakeholders and

governance in the sharing and implementation of the overall strategy, thus allowing an increase in

the perception of value by the primary stakeholders (residents). In cities, economic activities—

commerce, trade, and services—and residents are configured as active parts in the network, but

also as a major drag on the value generated by a redevelopment project or a territorial marketing

strategy that promotes economic empowerment and improves quality of life.

2.2 The Place network and the problem of defining boundaries

So far in this work, territory, place and environment have been approached in terms of network.

In the literature, any system and, more generally, any network (whether a place network or a

business network, or another kind) can be represented as a set of actors (stakeholders) dependent

on each other and on the relations between them (Gummesson, 2008), through which they

exchange, manage, and organize resources in order to achieve and maintain overall value (Polese

& Moretta, 2007). The boundary surrounds those processes that can be considered proper to the

network and which are managed and organized by the government in the search for relations

between all actors composing that system (Barile, 2009; Golinelli, 2010).

Thus, within the elements of the network there are, fundamental units and the individual parts,

entities, or actors composing it. As stated by Polese (2004: 44), in business realities such

networks are made up of providers, distributors, financers, technologies, and demand. In the case

of a place, the actors composing it are citizens, authorities, entrepreneurs, tourists, and many

others, although the situation may be considerably more complex. In order to study a territory

(and to best govern it), the first important concern for researchers is to identify which actors are

included. That is, who are the relevant actors? Which actors are in one place instead of another

(neighboring or not)? In other words, what are the place boundaries and what is contained within

them? In some particular cases with small, closed sets of actors (such as a university department),

the issue is relatively easily addressed. Again, let us consider the membership: in this instance, it

is plausible to state that the set of actors is objectively bounded. The entire set of members makes

up the network. In other cases, the boundary of the actors may be more difficult, or even

impossible, to determine. All these examples underline how interorganizational networks within a

community (Knoke & Wood, 1981; Knoke & Kuklinski, 1982; Knoke, 1983) or across a nation

(Levin, 1972) may lack well-defined boundaries. This is because drawing boundaries around a

network, such as a place network, is somewhat arbitrary, and effective, objective, reasonable

limits can be put on the discussion. Another reason that such boundaries are blurred is that


Volume 3, Issue 1

January - June 2014


72

“actors may come and go, may be many in number and hard to enumerate, or may be difficult

even to determine whether a specific actors belongs in a set of actors” (Wasserman & Faust,

1999: 31).

In such a sense, network analysis is useful in that it tries to study and define network borders,

helping to find a possible solution for the questions posed in this paragraph.

3. PLACE BOUNDARIES IN NETWORK ANALYSIS

According to network theory (Jarillo, 1988; Capra, 1997; 2002), it is possible to define a

network’s boundary as a function of the relations existing between its actors. In other words, a

certain network exists and extends to the point where its actors no longer maintain interactions

with each other. Recalling that networks are meant as systems of interdependent entities, and that

such connections can include cultural variables (languages, codes, values), operative variables

(planning and control systems), and bureaucratic variables (economic transactions, commitments,

and rights and duties), network researchers have over the years defined network boundaries as

based on:

i. the frequency of interactions;

ii. the intensity of the ties among members;

iii. the sense of membership or belonging.

As far as point i. is concerned, it has been stressed (Polese, 2004) that the phenomenon of

interaction frequency (the amount of flow) justifies, makes possible, and defines the network

constraints as a form of government that allows the specificity of internal resources to be

increased and consolidated, as interactions make relations more stable and foster mutual trust

(Richardson, 1972; Hakansson & Ostberg, 1975). Thus, the frequency of the exchanges allows a

sort of control over the network through stability and bilateralism of resource sharing, more

efficient information flow, and, ultimately, a greater ability to configure the behaviors of the

actors (Granovetter, 1992).

“A tie connects a pair of actors by one or more relations. Pairs may maintain a tie based on one

relation only, e.g., as members of the same organization, or they may maintain a multiplex tie,

based on many relations, such as sharing information, giving financial support and attending

conferences together” (Garton, Haythornthwaite & Wellman, 2007). According to Granovetter

(1973a; 1973b; 1982), strong tie relationships occur among actors who are similar in many

respect and know the same range of things. When information is unavailable through strong ties,

players may obtain it through weak ties, that is, through relationships characterized by absent or

infrequent contacts, by a lack of closeness, and by a lack of history of reciprocal service. Thus,

ties vary in content, direction, and strength. Referring to the last of these, ties are referred to as

weak or strong (though they change from context to context); ties are weak if infrequently

maintained and nonintimate, e.g., between coworkers who do not share joint activities and who

are not close friends. Strong ties are featured by intimacy, self-disclosure, and the provision of

reciprocal services (as happens in a territory). Those actors who maintain strong ties are more

likely to share resources, even if what they have to share is limited by the resources entering the

networks to which they belong. Weakly-tied actors, while less likely to share resources, provide

access to more diverse types of resources since each of them operates in a different network. This


Volume 3, Issue 1

January - June 2014


73

cross-cutting “strength of weak ties” also integrates local clusters into larger systems

(Granovetter, 1974).

Analyzing the third variable, some authors (Laumann, Marsden & Prensky, 1989) have described

the concept of sense of membership using a “realist” and a “nominalist” approach. As explained

in Wasserman, Faust (1999), in the first case, membership is perceived by the actors themselves.

Suppose there is a street gang acknowledged as a network by its members. The boundary of the

gang is then defined by the collection of people that the members accept as belonging to their

network. In the second case, the network borders are perceived and established by an external

observer, so that they are subjective and dependent on time and contingencies, as for example in

the case of the study carried out by researchers on a specific cluster. In such a case, the list of

relevant actors is collected by researchers and depends strictly on the analytic purposes of the

researchers, even though the latter could not perceive a set of actors as constituting that particular

network.

Some other authors have emphasized that such a sense of belonging, although subjectively

perceived by the actors involved in the so-delimited network, is not sufficient to make a value

network. As in Iandolo, Calabrese, Antonucci, Caputo (2013), it is clear that the network can take

advantage from the relationship with the multitude of actors belonging to it, and in possession of

relevant resources, in terms of survival of the whole.

Aware of this need, the key element is now the exaltation of the need to encourage the

redefinition of the market relationships so as to create value propositions that generate

satisfaction and do not only cause an indiscriminate use of the available resources in the territory.

In order to allow such redefinition, it is necessary to transition from the logic of the individual—

where the individuals prevail over the group—through the logic of corporations, in which the

parties live together as a function of a strong sense of belonging, to the logic of identity, where

actors are pushed to abandon their road to become part of a global network whose strength is not

simply given by the sum of the parties, but by the exponential combination of individual skills

(Barile, 2012).

From this point of view, it is important to highlight the role of relationships and common

interests that foster the achievement of a higher level of satisfaction. We need to dwell on the

relationship between the actors in the same network, who share resources, information, and

ultimate goals (Gulati, 1988; Jarillo, 1988; Hakansson & Snehota, 1995).

4. THE ROLE OF SERVICE SCIENCE IN THE INTERPRETATION OF THE

RELATIONSHIPS BETWEEN ACTORS

The multidisciplinary approach for the transition to a service-dominant logic (as service culture)

makes it inherently difficult to define a new kind of discipline that could be considered really

“cross and unifying” (Polese, Moretta Tartaglione, Sarno & Carrubbo, 2010); there are debates in

academia on how to describe the resulting transition and the implications of the different

characterizations, both for basic and for applied research. Beginning with the studies and

considerations conducted in distinct areas of research, we are looking to raise awareness

worldwide of the utility, the fundamental importance, role, and applications of “service” in all

domains of knowledge, and in all production areas. This is developed in accordance with a new

logic, considered dominant, which has its roots in various historical strands, and which is the

result of a long process of interpretation focused on a new and updated concept of service, on the


Volume 3, Issue 1

January - June 2014


74

study of service systems and more recently on the conceptual development and interpretation of

smart service systems (Maglio & Spohrer, 2008a).

Service science, management, engineering, and design (SSMED) offers different perspectives for

investigation and spans many fields of interest and application. In terms of science, it investigates

what service systems are and how they really evolve, focusing on the active role of the people

employed in them, of knowledge, of shared information, and of technologies, as well as on the

importance of the active participation of the services’ users (the demand) in the production

process (offer) (Maglio & Spohrer, 2008b). In terms of management, it investigates possible

solutions for implementing evaluation of efficiency, sustainability reports, and systemic

interaction within service systems. In terms of engineering, it is responsible for developing new

technologies for the processes of detection, measurement, and dissemination of information—

essential for sharing in the contemporary process of value-generation. In terms of design, it seeks

to deepen the appropriate configuration techniques for the proper structuring of service systems.

This scientific strand allows, in fact, an understanding to be gained of how and how much any

system can be “read” as something founded primarily on the logic of service (Maglio & Spohrer,

2008a).

With the definition of the role of the service and the recognition of its significance, the

conceptualization of space, within which it is developed, produced, delivered and received, has

undergone continuous changes over time, leading to numerous interpretations of so-called service

systems. A service system, first of all, it is related to interactions supplier or customers and is

therefore seen as an open system that can boost its equilibrium state through the acquisition,

sharing, and provision of resources. According to IBM researchers, the smallest service system is

the single person, and the largest is the global economy as a whole (Qiu, 2009). Service systems,

according to the first definition of service science, represent configurations of people, technology,

value propositions, and shared information capable of cocreating value though common

languages, laws, measurements, and methods (Spohrer, Maglio, Bailey & Gruhl, 2007).

Each service system is then simultaneously a provider and user of services, structured according

to the need as a value chain, a network of value, or a value system. The service system may

simply be a software application or a business unit within an organization, or may arise from a

work group or a business department; alternatively, it might be an institution, a government

agency, a city, or a nation; it could be formed from a composition of several collaborative related

service systems, both interorganizational and intraorganizational (Qiu, Fang, Shen & Yu, 2007).

A service system can, therefore, act as an integrator of resources, interpretable in terms of the set

of elements belonging to a single work system and able to favor the specialization of knowledge,

skills, know-how, people, products, materials, finances (Spohrer, Anderson, Pass, & Ager, 2008).

Service systems are defined as work systems (Alter, 2008) where the service providers and

consumers share knowledge and information within a specific dynamic networked supply value

chain (Spohrer, Vargo, Maglio & Caswell, 2008). Service systems can interact more or less

formally; informal interactions acquire significance through implicit or explicit commitments and

respecting social norms for public governance; formal interactions are, however, linked to official

statements that establish the rules for contracts, licenses, and rights, and are protected and

guaranteed by the presence of a recognized authority (Katzan, 2008). Suppliers and customers are

complex service systems that lead actions in the market in order to obtain the expected results as

solutions and experiences. The service systems are able to foster connections and interactions


Volume 3, Issue 1

January - June 2014


75

between the various Actors involved in the process of exchange, following several channels of

communication between businesses, consumers, and stakeholders (Polese & Mele, 2010).

With the growing importance of services in all business sectors, companies today almost always

orient their core to service activities, focusing their business functions on service logics and

generally following the evolution of the concept of service. This cognitive framework influences

business models, decision making, and relationships, and leads to a continuous upgrade in terms

of business management and strategy, revisiting the role of business and its relationship with the

market. We can mention several of the key of service science, starting from the 10 fundamental

concepts that have recently been defined and discussed (Maglio, Spohrer, Ager & Pass, 2008).

See table 1 in appendix.

The ultimate goal of service science is to promote the science of productivity, quality,

performance, respect, and learning through general improvements in coproduction, relationships,

innovation in all sectors of production. The attempt is to unify, initially at a cultural level, the

results achieved in the fields of computer science, operations research, industrial engineering,

business strategy, business management, social sciences, cognitive sciences, and legal sciences so

as to develop all the skills required in a service economy (Maglio & Spohrer, 2008b).

The progressive evolution of service science has prompted the development of a study that

focuses on modern, intelligent service systems, driven in particular by the progress made on the

international level in information and communications technology. The idea is based on the need

to consider more organizations being better able to deal with changing conditions in a more

responsive, adaptive, proactive, and dynamic context. We anticipate that progressively new

technologies should be increasingly able to reconfigure themselves and the systems, including

businesses, to which they are dedicated; in particular, companies will be increasingly able to

reformulate and reorganize all of their assets in order to maintain a stable sustainable equilibrium

over time. In the future, everything will be related and interconnected, and for this reason, there is

already increased attention on learning processes, innovative processes, technological progress,

measuring standards, and quality.

In a smarter planet, there will be space-only systems (manufacturing, computer, conceptual, etc.)

that will be able to manage themselves; this is true in all sectors and areas of application,

especially in water management, electricity distribution, public transport, professional education,

and health care. Among the most direct consequences of this approach (Spohrer, Maglio, Bailey

& Gruhl, 2007), we can include: i) the participation of various actors in the process of value

creation and customization of the product/service created; ii) the increased ability to react in real

time; iii) the current level of high-quality service, expectations, behaviors, needs, and the

development of new systems.

The changing role of interconnections, facilitators, measures, standards, and procedures are

evidence of this theoretical paradigm; innovative and intelligent utility networks, measurement,

intelligent transportation, supply chain, manufacturing productivity, tourist destinations, etc.,

however, appear today as correspondent and convenient applications (Maglio, Srinivasan,

Kreulen & Spohrer, 2006).

With reference to the multisectorial analysis initiated to examine new reflections on the concept

of “smart” (which is often expanded as “specific, measurable, agreed, realistic and timely”),

researchers in service science have investigated all potential service applications “on stage”—

referring to the practice of evidence for something that is considered truly iterative, interactive,

interconnected, intelligent, and representative of a smarter planet (Demirkan, Spohrer & Krishna,


Volume 3, Issue 1

January - June 2014


76

2011a; 2011b). Considering a real overview, we want to understand how to actually implement

the sustainable development of a complex system characterized by the many actors (workers,

citizens, producers, suppliers, authorities, consumers, users, borders, etc.) and many facilitators

(retail sales, roads, networks, agriculture, financial services, healthcare, and government) that are

fundamental in the improvement of management capacity and the implementation of

collaborative strategies. In this sense, smart service systems are not derived from intuition or

chance, but by systematic methods, continuous learning, timely data collection, rational

innovation, social responsibility, and networks of governance (Barile, Carrubbo, Iandolo &

Caputo, 2013).

5. THE RELEVANCE OF CO-CREATION AND WIN-WIN LOGIC

The processes of value creation, according to the S-D logic (Vargo, Lusch, 2004; 2008; 2010),

suggest a change in roles and dimensions of relevance. At present, an important part of the

process is played by customers, who are considered the key element from the earliest stages of

the production process, and not only at the stage of final consumption (Grönross, 2008).

Customers are crucial for enriching the product, and are therefore considered essential for

competitiveness. In this scenario, the process of value creation involves customers in a process of

personal consumption, considering them as a real strategic leverage and as cocreators—thus

suggesting that businesses may work primarily as supplements and managers of the resources that

are needed and available, in order to generate a positive value spread between the concerned

parties.

From this point of view, the value proposition ultimately represents a specific package of benefits

and solutions that a service system intends to offer and provide to others. The division of labor is

at the root of many value propositions, which is why the modern meaning of service may be

associated with a form of co-creation of value that involves both parties to an exchange (Prahalad

& Ramanswamy, 2000; 2004; Vargo, Maglio & Akaka, 2008; Mele & Polese, 2011). It follows

that:

1) Customers are not isolated, and the company-customer relationship is not only bilateral.

2) The result is the co-creation of value; what is created is an experience.

3) New elements for the value co-creation should be like a two-way dialogue.

Thus, no single company can provide a complete cocreative experience by itself. Often, a

network of companies must act together to provide co-creation (Gronroos, 2006). Today, the

objective of value creation, in fact, must be both internal (through the services and strategies for

improvement of product quality, optimizing effectiveness, and efficiency) and external (as a

function of relationships with other actors, looking for structural growth in terms of skills,

knowledge, opportunities, techniques, and so on). There is, therefore, a close link between new

considerations and the service system and modern interpretations of the value creation. Desiring

to consolidate, and then synthesize, the representation of the levers of comparison between the

studied paradigms, it is possible to assert that the new models of value creation must be

implemented strictly in relation to the new concept of service, on account of the serious

consequences for co-creation that the partnership of all the stakeholders in the process of

generation inevitably brings (Wieland, Polese, Vargo & Lusch, 2012).


Volume 3, Issue 1

January - June 2014


77

All this means that the competitiveness transactional of the past, which was initially based on a

competitive strategy, is now being replaced by adaptive behavior that is always characterized by

systemic dynamic interactions (Barile, Pels, Polese & Saviano, 2012). From this, it can be

checked to what extent consumers are not only interested in the goods or services as such, but

rather in their representation of solutions to their needs. Consumers do not obtain the value

directly from the product itself, but from its use, processing, or consumption, and by comparing it

with other entities interested or involved in the build process (Katzan, 2008); the value of a

product is thus derived from the benefit obtainable from the underlying service. The value is then

derived from the process of coproduction, codesign, and comarketing, involving multiple

contributions from different entities (including end users), thanks to the sharing of information,

resources, skills, needs and risks. The value is therefore determined by the consumer at the time

of purchase, through a personal “consumption” process favored by constant interaction with other

parts of the service system in which it operates (Gronroos, 2008). This process helps to make the

actual perceived value to that time only a potential value proposed. The customer then becomes a

real cocreator of value and, consequently the firm is observed only as an integrator (and manager)

of the resources necessary to the process of creation.

On a smarter planet, the systems must be people-centric, information-driven, e-oriented, and give

mutual satisfaction, and the community should encourage and cultivate people to collaborate and

innovate continuously (Demirkan, Spohrer & Krishna, 2011a; 2011b). Service systems,

especially if smart, are therefore complex adaptive systems in continuous evolution (Barile,

Polese, 2010a; 2010b), a form of ‘system of systems’, which contains service systems and is

included in a wider service system, which is able to interact with external service systems

through value propositions (meaning that the acceptance or perception of the recipients must be

checked), designed to form and develop stable relationships (Qiu, 2009).

The processes of value creation are therefore strongly influenced by numerous aspects of the

systemic view of a complex activity, and are oriented, focused, and deeply rooted in the new

concept of service, knowingly or not (Polese, Russo & Carrubbo, 2009; Carrubbo, 2013). Today,

the management of a system must pass through a common ultimate goal in an attempt to

transform static relationships in dynamic interactions with other systemic entities.

In order to properly coordinate the coveted systemic balance, the strategic decision makers of any

organization must take advantage of the opportunities and resources available, however limited,

and find in them the satisfaction of use. The necessary process of continuous learning, which may

favor adaptation and sustainable development, promotes continuous connections with interactive

elements or subjects (intra-system relationships), especially with third-party organizations of

similar nature (inter-system relationships) and with influencing systems (supra-system

relationships), through appropriate knowledge-intensive techniques and procedures, so as to

promote solutions to co-design, co-produce, co-market, and co-creation (Pels & Polese, 2010;).

The philosophy behind this interpretative approach is as follows (Carrubbo, 2013):

I win even if you win;

I think I will be successful if I can offer something that has value to you (and hence is

preferred over alternatives on the market);

You confirm your perception by making a simple choice to buy or participate directly in the

production of the product;


Volume 3, Issue 1

January - June 2014


78

I try to encourage interaction with you because I understand the usefulness;

You are looking for a relationship of trust, because this offer the satisfaction of your needs in a

way that often the logic of mass production has not adequately explored;

From this point of view, qualifying the operators involved does not matter; the distinction

between supplier, customer, and user becomes irrelevant. What counts instead is to highlight the

role of relationships and common interests that promote collaboration and the achievement of a

higher level of satisfaction. This means overcoming the logics of B2B, B2C, and C2C and to

analyze more carefully the characteristics and advantages of the connections (Gummesson &

Polese, 2009). Some recent advances in service science have led to a different interpretation of

interorganizational relationships, where A2A relations define all relationships (Wieland, Polese,

Vargo & Lusch, 2012; Carrubbo, Di Nauta & Moretta Tartaglione, 2012). In an attempt to point

out most of the qualification of a specific actor operating in the build process under study, it is

necessary to dwell on the relationship that binds actors to other actors of the same service system,

and with which they share an ultimate goal, resources, and information. Attempting to interpret

these interesting conceptual intersections in systems, values, and service, we can deduce that

(Carrubbo, 2013):

Value is considered to be an improvement in a system, as perceived by the system itself or by

the ability of the system to be integrated in its environment.

Value creation takes place as a potential resource has become an effective specific benefit.

Value co-creation has a win-win logic that considers the interaction among different entities

represented by various service systems and by the desire to reach collective mutual

satisfaction, in which the active contribution is multiple, the integration is maximum, and

complementarity is fundamental.

Economic exchange is ultimately voluntary; it is the mutual use of resources for mutual value

creation through two or more interacting systems.

The service systems are not defined by means of simple relations and interactions between

resources alone: some resources must be active, and must thus ensure the proposal, agreement,

and evaluation processes of value co-creation, which are often, if not always, of a network

nature.

The supply chain is reconceptualized as a network of service systems, and for this reason has a

configuration that cannot be defined a priori, but rather is changeable; it can to adapt and

evolve in relation to changing contextual conditions.

The contributions of knowledge, the application of skills, the ability to configure and

reconfigure, and the desire to maintain relationships with long-terms subjects considered

strategic all represent the elements of a systemic way of being adaptive.

Value is perceived and determined by the customer on the basis of value in use (through the

previously defined consumption process); much more than something as defined ex-post, but

achievable especially ex-ante, through the relevant contribution recipients in the value co-

creation process.


Volume 3, Issue 1

January - June 2014


79

The service can be seen as a final goal, rather than as a means in the process of value

generation, as servicetion, servicescape, service age, and service economy contribute to the

consolidation of a true culture (based on the spirit of service that increases the value of action),

rather than the ability to mediate towards something more specific and less generalizable.

The focus of value creation, and especially of value co-creation, must in this sense be examined

both internally (through strategies of improving the quality of goods and services and through

structural growth in terms of capabilities, knowledge, and opportunities), and externally (because

of the collaborative relationships with other stakeholders).

Given the great interest in evolution, expansion, and business results, companies today must

consider value in an extended manner, as multidimensional, dynamic, and vectorial, while

analyzing information according to the variety and value inherent in the internal components of

the various organizations of systems.

6. EVOLUTION OF THE CONCEPT OF SERVICE ECO-SYSTEM AND THE

IDENTIFICATION OF TERRITORIAL BOUNDARIES

Contact, Submit, Participate! This slogan could summarize the main cornerstones of systems

theories. A given system, in order to survive, tends to absorb energy from both suprasystems and

subsystems (components), so as to help develop an entire eco-system in which to operate. Each

system is, in fact, characterized by a dynamic evolution, in constant relation with external

systems.

A service eco-system (Wieland, Polese, Vargo & Lusch, 2012), would thus be temporally and

spatially defined as a network of social actors exchanging resources, connected by value

propositions, goals, languages, technologies, and standards. In terms of relationships, today’s

networks are considered to be made in terms of relevance, and are seen as something more than

the sum of their individual nodes.

The variety and variability of information about possible connections within the network service

systems promote new forms of cooperation which can be interpreted as interactions between

cognitively aligned actors (Barile, Saviano, Polese & Di Nauta, 2012). At the same time, the

opportunity to explore the processes of value creation in the context of a network identifies the

“complexity of the eco-system”, in which everything is collected, identified, and active; this

complexity does not only depend on the number of actors operating in it (Barile & Saviano, 2010;

2011), but also on the conditional probability that those actors are involved in the provision of

services. In the presence of certain environmental contingencies, organizations can survive in a

particular context only if they improve their ability to evolve and make their operations

correspond to external changes (Polese & Carrubbo, 2008; Polese, Carrubbo & Russo, 2009). In

fact, the opening of the systems involves a homeostatically dynamic adaptation to external

changes, and their survival is directly related to the ability to search for and promote satisfactory

dynamics and evolution (Barile, 2009).

“No business is an island” (Hakansson & Snehota, 1995): In order to survive, organizations

cannot relate to their own subjective framework, and must respect the constraints and rules of the

objective environment. For a given system, the environment is therefore the set of exchange

objects whose characteristics affect, and are affected by, the behavior of a system.


Volume 3, Issue 1

January - June 2014


80

Seen this way, the concept of territory can be interpreted in many ways, from the point of view of

geography, economics, sociology, business, etc. Each actor of a particular territory (operators,

visitors, local people) has its own perceptions, conveyed by environmental and sociocultural

influences, by needs and expectations, by past experience, by purchasing behavior, and by

consumption (Barile, Saviano, Polese & Di Nauta, 2012). In this sense, it is possible to define a

territory as a system; analyzing its operation implies, first of all, understanding, rationalizing, and

organizing the roles and actions of local actors and the links between them.

Intending a territory as a “geographical context” (location, area, small village, country), we

include all the necessary facilities related to housing, food, and recreation. By adopting instead a

supply-side perspective, a territory can be understood as the set of products, services, and

experiences, complementary and interconnected, realized and/or organized by the variety of

producers that carry out their activities directly, in order to respond to their request, in a way that

is proactive, reactive, and adaptive. In this sense, a Territory should be studied not only as a place

circumscribed geographically or by administrative action, but as a system, a set of factors and

activities located in a defined space (site, location, area), able to propose a detailed and integrated

offer (Polese, 2009b; Carrubbo, 2010; 2013). So the territory is not simply a geographical space

but, on the contrary, a recognizable place acting to promote itself by developing over time.

A comparison of development models can shed light on several key elements that are crucial to

the economic growth of the territory, conceived as a system (or as a network of networks) and

run as a system service; it can be interpreted as smart service systems if it is demonstrated that it

is possible to maintain the adaptive features well enough to adequately respond to the changing

needs of the context, in order to maintain its appeal, develop, and survive (Polese 2009a; Polese

& Minguzzi, 2009). Thus, a territory must be characterized as (Carrubbo, 2013):

a system that is highly recognizable;

an easily accessible system that takes advantage of the proximity to local poles of attraction;

a widespread reception system that is responsive to requests that come from the demand in

terms of quality, service, and experience;

a system attentive to the “culture”, and care of the place;

a system based on maintaining the atmosphere and enhancing traditions;

a system that communicates, nourishes, and strengthens the identity, both internally and

externally;

a system of promotion strategies focused on emotion, discovery and unique experiences.

All of these characteristics concerning the territory as well as the aspects of its possible

development, can be better defined, analyzed and understood at the light of the Service Science

paradigms (as represented in the Table 2 – see appendix).

7. MAIN CONCLUSIONS AND IMPLICATIONS

Place marketing theory, social network analysis, and service science are the theoretical tools used

in this paper to determine the elements that connect the assets and drivers making make the place

a “system” that can create value. The elements that “make a place strong” are the assets that have


Volume 3, Issue 1

January - June 2014


81

the power to create value in that place; to “create value” means that the assets work together

towards a single goal: the sustainable economic and social development of the place.

Marketing gives governance (which can think and act) strategic and operational tools for

developing a plan to improve relations among stakeholders in the place; according to network

analysis, these relationships have a measurable intensity according to the particular indicators

developed “ad hoc” on the basis of measurement needs (in the place management case, it is

important to measure the intensity of relations in order to verify the results from the process of

value creation in the place). Service science, on the other hand, provides the tools to understand

the nature of relations and the selection of relevant relations necessary to understand the real

connections between the assets and the relevant elements of the place-system. Given this, if there

is a marketing plan for the development of a place, there must also be present a process of value

creation that is perceived by local stakeholders; those who live in a geographic area are located

within the boundaries of that place only if they share the values and goals of the marketing plan

reported in that area, and if they recognize the macrorelational categories of that place—transfer

of information and knowledge in the area, cocreation of value between stakeholders and

governance, the spread of knowledge, shared vision, a sense of belonging, and key performance

indicators. In this sense, therefore, the concept of place begins to exceed the concept of tangible

assets, and takes on an intangible dimension that allows it to exceed the administrative

boundaries and to involve very distant places, aggregating the stakeholders sharing a strategic

plan, rather than the natural spatial homogeneity. It can thus be argued that the boundaries of the

marketing-oriented territory are determined by the limits of the stakeholders’ value perception.

This approach aims to stimulate research into the identification of a new way of conceiving

territories and their management, making local authority boundaries “variable in time and space”,

and therefore creating value in an open system. With the support of social network analysis and

service science, we can rearrange the order of the relevant factors in the process of creating value.

This is a new way to analyze the process of value creation in a place: beginning from the

knowledge of stakeholder relations and interactions, it becomes possible to understand the real

dimensions of the physical place. The old closed-system approach starts from the analysis of

place dimensions inside the administrative boundaries and moves toward an optimization of

assets and interactions inside these boundaries, without considering the possible and relevant

interaction among stakeholders and elements outside the administrative boundaries.

At the managerial level, implications from such a perspective suggest local governments to keep

integrated and to satisfy as much as possible personal and relational needs of those who live and

keep alive the territory. This means to be compliant with expectations of citizens, businesses,

administrators, and other, so that they can all share common pathways of the territory

development, co-creating overall value and sustainability and, at the same time, transforming a

good theory in best practices. Nevertheless, the main reason why such good intentions only

remain words is the difficulty to join necessities of a large number of actors involved in, each one

owing different resources, possibilities and perspectives, that is – answering to a variety of

subject with different priorities (as they could be on one side the need of citizen to live in a safe

and healthy environment and, on the other side, entrepreneurial behaviours and attitudes that

often do not respect such need). Still, the issue of a territory development deals with ethical,

social, political and economic priorities and any effort aimed to the improvement of the

management of such network ought to be pursued.


Volume 3, Issue 1

January - June 2014


82

This work allows many reflections about the place marketing, the network analysis and the

Service Research and deserves to be deepened even more. For future researches the aim is to

verify empirically the consistence of the macro-categories outlined and the implications for the

territory and the difference existing between the old and the new approach in terms of value co-

creation. It will be possible to compare two different contexts with same characteristics and

features (at structural and system level), but with several results in terms of competitivity,

sustainable strategies and governance. In Italy there are many useful business cases, because of a

lot of differences between the several places; the willingness is to demonstrate that in the real life

an efficient place management and shared values (as perceived by stakeholder involved and

operating within) can really represent a successful driver the welfare of any territory.

ACKNOWLEDGEMENTS

Although the present work is the result of joint discussions, the paragraphs 4, 5 and 6 are to

attribute to Luca Carrubbo, the paragraphs 1, 2, 2,1 and 7 are to attribute to Roberto Bruni, the

paragraphs 2.2 and 3 are to attribute to Emanuela Antonucci.

REFERENCES

Alter, S. (2008). Service system fundamentals: Work system, value chain, and life cycle. IBM

Systems Journal, 47(1): 71-85.

Ashworth, G. J., Voogd, H. (1990). Selling the City. London: Belhaven.

Auge, M. (1993). Non luoghi. Introduzione ad un’antropologia della surmodernità. Milano:

Elèuthera editrice.

Barile, S. (2009). Management Sistemico Vitale. Torino: Giappichelli.

Barile, S. (2012). Introduzione. In Saviano, M. (Eds.). Condizioni di efficacia relazionale e di

performance nell’azienda sanitaria, XI-XIII. Torino: Giappichelli.

Barile, S., Pels, J., Polese, F., Saviano, M. (2012). An Introduction to the Viable Systems

Approach and its Contribution to Marketing. Journal of Business Market Management, 5(2):

54-78.

Barile, S., Polese F. (2010a). Linking the viable system and many-to-many network approaches

to service-dominant logic and service science. International Journal of Quality and Service

Science, 2(1): 23-42.

Barile, S., Polese, F. (2010b). Smart service systems and viable service systems. Service Science,

2(1/2): 21-40.

Barile, S., Saviano, M. (2010). A new perspective of systems complexity in service science.

Impresa, Ambiente, Management, 3(3): 375-414.

Barile, S., Saviano, M. (2011). Qualifying the concept of systems complexity. In Barile, S.,

Bassano, C., Calabrese, M., Confetto, M. G., Di Nauta, P., Piciocchi, P., Polese, F., Saviano,

M., Siano, A. Siglioccolo, M., Vollero, A. (Eds.). Contributions to Theoretical and Practical


Volume 3, Issue 1

January - June 2014


83

Advances in Management—A Viable Systems Approach (VSA), 27-63. Avellino:

International Printing.

Barile, S., Saviano, M., Polese, F., Di Nauta, P. (2012). Reflections on service systems

boundaries: A viable systems perspective: The case of the London Borough of Sutton.

European Journal of Management, 30: 451-465.

Barile, S., Carrubbo L., Iandolo F., Caputo, F. (2013). From ‘EGO’ to ‘ECO’ in B2B

relationships. Journal of Business Market and Management, 6(4): 228–253.

Borchert, J. G. (1994). Urban marketing: a review. In Braun, G. O., Karn, J., Linemann, H.,

Schultz, A., Woosname, G., Woosnam, J. (Eds.). Managing marketing of urban development

and urban life. Berlin: Deitrich Reimer Verlag.

Camagni R. (ed.) (1991). Innovation Networks. London: Belhaven Press.

Capra, F. (1997). The Web of Life. London: Flamingo.

Capra, F. (2002). The Hidden Connections. London: HarperCollins.

Carrubbo, L. (2010). Service science, management, engineering and design and its suggestions

for destination management. Proceedings of the 13th Congress TOULON Verona in Coimbra.

Carrubbo, L. (2013). La Co-creazione di valore nelle destinazioni turistiche. Roma: RIREA.

Carrubbo, L., Di Nauta, P., Moretta Tartaglione, A. (2012). A2A relationships in service

contexts. Chinese Business Review, 11(10): 873-890.

Cresta, A. (2008). Il ruolo della governance dei distretti industriali: un’ipotesi di ricerca e

classificazione. Milano: FrancoAngeli.

Demirkan, H., Spohrer, J, Krishna, V. (Eds.) (2011a). Service Systems Implementation. New

York: Springer.

Demirkan, H., Spohrer, J, Krishna, V. (Eds.) (2011b), The Science of Service Systems. New York:

Springer.

Felson, M. (1987). Linking Criminal Choices, Routine Activities, Informal Control, and Criminal

Outcomes. In Cornish, D., Clarke, R. (Eds.). The Reasoning Criminal: Rational Choice

Perspectives on Offending. New York: Springer-Verlag.

Garton, L., Haythornthwaite, C., Wellman, B. (1997). Studying Online Social Networks. Journal

of Computer-Mediated Communication, 3(1): 1-30.

Golinelli, G. M. (2010). Viable Systems Approach (VSA). Governing Business Dynamics.

Padova: Kluwer Cedam.

Glover, T. D., Parry, D. C. (2009). A third place in the everyday lives of people living with

cancer; functions of Gilda’s Club of Greater Toronto. Health and Place, 15: 97-106.

Granovetter, M. S. (1973a). The Strength of Weak Ties. American Journal of Sociology, 78:

1360-1380.

Granovetter, M. S. (1973b). The Strength of Weak Ties. In Marsden, P., Lin, N. (Eds.). Social

Structure and Network Analysis, 105-130. New York: John Wiley and Sons.


Volume 3, Issue 1

January - June 2014


84

Granovetter, M. S. (1974). Getting a job. Cambridge: Harvard University Press.

Granovetter, M. S. (1992). Problems of explanation in economic sociology. In Nohria, N., Eccles,

R. G. (Eds.). Networks and organizations: structure, form and action. New York: Harvard

Business School Press.

Grönross, C. (2006). What Can a Service Logic Offer Marketing Theory?. In Lusch, R. F.,

Vargo, S. L. (Eds.). The Service–Dominant Logic of Marketing: Dialog, Debate, and

Directions, 320–333. Armonk: ME Sharpe.

Grönross, C. (2008). Adopting a service business logic in relational business-to-business

marketing: value creation, interaction and joint value co-creation. Otago Forum 2, 269-287.

Gulati, R. (1998). Alliances and Networks. Strategic Management Journal, 19: 293–317.

Gummesson, E. (2004). From one-to-one to many-to-many marketing. Proceedings of the QUIS

9 Symposium, Karlstadt University.

Gummesson, E. (2008). Total Relationship Marketing. Burlington: Butterworth-Heinemann.

Gummesson, E., Polese, F. (2009). B2B is not an island. Journal of Business & Industrial

Marketing, 24(5/6): 337-350.

Hakansson, H., Ostberg, C. (1975). Industrial Marketing: an organizational problem. Industrial

Marketing Management, 4(2/3): 113-123.

Hakansson, H., Snehota, I. (1995), Developing relationship in business network. London:

Routledge.

Iandolo, F., Calabrese, M., Antonucci, E., Caputo, F. (2013). Towards a value co-creation based

Healthcare System. In Gummesson, E., Mele, C., Polese, F. (Eds.). Service Dominant Logic,

Network and Systems Theory and Service Science: Integrating three Perspectives for a New

Service Agenda, 61. Napoli: Giannini.

Jarrillo, J. C. (1988). On strategic network. Strategic Management Review, 9: 31-41.

Katzan, H. (2008). Foundations of Service Science concepts and facilities. Journal of Service

Science, 1(1): 1-22.

Kearns, A., Paddison, R. (2000). New challenges for urban governance. Urban Studies, 37(5-

6):845-850.

Knoke, D. (1983). Organization sponsorship and influence reputation of social influence

associations. Social Forces, 61: 1065-1087.

Knoke, D., Kuklinski, J. H. (1982). Network Analysis. Newbury Park: Sage.

Knoke, D., Wood, J. R (1981). Organized for Action: Commitment in Voluntary Organizations.

New Brunswick: Rutgers University Press.

Laumann, E. O., Marsden, P. V., Prensky, D. (1989). The boundary specification problem in

network analysis. In Freeman, L. C., White, D. R., Romney, A. K. (Eds.). Research Methods

in Social Network Analysis, 61-87. Fairfax: George Mason University Press.


Volume 3, Issue 1

January - June 2014


85

Maglio, P. P., Spohrer, J. (2008a). Fundamentals of service science. Journal of the Academy of

Marketing Science, 36(1): 18-20.

Maglio, P. P., Spohrer, J. (Eds.) (2008b). Special issue on Service Science, Management, and

Engineering. IBM Systems Journal, 47(1).

Maglio, P. P., Srinivasan, S., Kreulen, J. T., Spohrer, J. (2006). Service systems, service

scientists, SSME, and innovation. Communications of the ACM, 49: 81–85.

Maktav, D., Erbek,

F. S., Jürgens, C. (2005). Remote sensing of Urban areas. International

Journal of Remote Sensing, 26(4): 655-659.

Mele, C., Polese, F., (2011). Key dimensions of Service Systems: Interaction in social &

technological networks to foster value co-creation. In Demirkan, H., Spohrer, J., Krishna, V.

(Eds.). The Science of Service Systems, 37-59. New York: Springer.

Moore, M. H. (1995). Creating public value: strategic management in government. Cambridge –

London: Harvard UP.

OECD (2000). The Reform of Metropolitan Governance.

Oldenburg, R.E, Brissett, D. (1982). The third place. Qualitative sociology, 5(4): 265-84.

Pels, J., Polese, F. (2010). Configurational fit: Understanding the Pre-requisites to Successful

Value Co-creation. Impresa, Ambiente, Management, IV(3/2010): 355-373.

Polese, F. (2004). L’integrazione sistemica degli aggregati reticolari di impresa. Padova: Cedam.

Polese, F. (2005). Risorse e identità locale per la valorizzazione del territorio: un percorso

difficile di integrazione sistemica e networking. In Morvillo, A., Petrillo, C. S. (Eds.).

Sviluppo del territorio: Identità e integrazione - Il caso del Parco Nazionale del Cilento e del

Vallo di Diano. CNR, pp.103-194.

Polese, F. (2009a). Local government and networking trends supporting sustainable tourism:

some empirical evidences. In Fusco Girardand, L., Nijkamp, P. (Eds.). Cultural Tourism and

Sustainable Local Development, 131-148. London: Ashgate.

Polese, F. (2009b). Reflections about value generation through networking culture and social

relations. Quaderni di Sinergie, 16: 193-215.

Polese, F., Carrubbo L. (2008). La Service Dominant Logic ed una sua interpretazione al

fenomeno turistico. Impresa Ambiente e Management, 2(1): 5-36.

Polese, F., Carrubbo, L., Russo, G. (2009). Managing business relationships. Between Service

Culture and Viable Systems Approach. Esperienze di Impresa, 121-144.

Polese, F., Di Nauta, P. (2013). A Viable Systems Approach to Relationship Management in S-D

Logic and Service Science. Business Administration Review, 73(2): 113-129.

Polese, F., Minguzzi, A. (2009). Networking approaches for sustainable destination management:

an italian case study. In Kozac, M., Andreu, L., Knoth, J. (Eds.). Advances in Tourism

Marketing. Managing Networks, 113-124. London: Routledge.


Volume 3, Issue 1

January - June 2014


86

Polese, F., Moretta Tartaglione, A. (2007). The inefficient governance of a net with no brain – an

analysis of Town Centre Management. Proceedings of the XXII ARETHUSE Conference on

Local Resources Governance.

Polese, F., Moretta Tartaglione, A., Sarno, S., Carrubbo, L. (2010). The emerging perspective of

Service Science for management and marketing studies. Impresa, Ambiente, Management, vol.

IV, n. 3/2010, pp. 331-353.

Polese, F., Russo, G., Carrubbo, L. (2009). Service Logic, value co-creation and networks: three

dimensions fostering inter-organisational relationships: competitiveness in the boating

industry. Proceedings of the 12th QMOD and Toulon-Verona Conference.

Prahalad, C. K., Ramanswamy, V. (2000). Co-opting Customer Competence. Harvard Business

Review, 78: 79-87.

Prahalad, C. K., Ramanswamy, V. (2004). The future of competition: Co-creating unique value

with customers. Cambridge: Harvard University Press.

Qiu, R. G. (2009). Computational Thinking of Service Systems: Dynamics and Adaptiveness

Modeling. Service Science, 1(1): 42-55.

Qiu, R., Fang, Z., Shen, H., Yu, M. (Eds.) (2007). Towards service science, engineering and

practice. International Journal of Services Operations and Informatics, 2(2): 103-113.

Raimondi, M. (2005). Marketing del prodotto-servizio. Integrare tangibile e intangibile per

offrire valore al cliente. Milano: Hoepli,

Relph, E. (1976). Place and placelessness. London: Pion Ltd.

Richardson, G. B. (1972). The organization of industry. The Economic Journal, 82: 883-896.

Rose, N. (1996). The death of the social? Re-figuring the territory of government. Economy and

Society, 25(3): 327-356.

Sansone, M. (2012), Place Management: città, territori, marketing. Milano: Mc-Graw-Hill.

Sansone, M., Bruni, R. (2012). Traiettorie evolutive nel marketing e nel management dei

“luoghi”. Proceedings of the XXIV Convegno annuale Sinergie.

Soukup, C. (2006). Computer mediated communication as a vitual third place: building

Oldenburg’s great good places on the world wide web. New Media and Society, 8(3): 421-40.

Spohrer, J., Anderson, L., Pass, N., Ager, T. (2008). Service Science e Service Dominant Logic.

Otago Forum 2, 4-18.

Spohrer, J., Maglio, P. P., Bailey, J., Gruhl, D. (2007). Steps Toward a Science of Service

Systems. Computer, 71-77.

Spohrer, J., Vargo, S. L., Maglio, P. P., Caswell, N. (2008). The service system is the basic

abstraction of service science. HICSS Conference.

Stuart-Weeks, M. (1998). Place management: fad or future?. Open forum, Institute of Public

Administration Australia (NSW Division).


Volume 3, Issue 1

January - June 2014


87

Vargo, S. L., Lusch, R. F. (2004). Evolving to a New Dominant Logic for Marketing. Journal of

Marketing, 68: 1-17.

Vargo, S. L., Lusch, R. F. (2008). Service-Dominant Logic: Continuing the Evolution. Journal of

the Academy of Marketing Science, 36(1): 1-10.

Vargo, S. L., Lusch, R. F. (2010). It’s all B2B…and beyond: Toward a systems perspective of the

market. Industrial Marketing Management, 40: 181-187.

Vargo, S. L., Maglio, P. P., Akaka, M. A. (2008). On value and value co-creation: a service

systems and service logic perspective. European Management Journal, 26(3): 145-152.

Walsh, P. (2001). Improving Government’s response to local communities - Is place management

an answer?. Australian journal of Public Administration, 60(2).

Wasserman, S., Faust, K. (1999). Social Network Analysis: Methods and Applications.

Cambridge: University Press.

Wieland, H., Polese, F., Vargo, S., Lusch, R. (2012). Toward a Service (Eco)Systems Perspective

on Value Creation. International Journal of Service Science, Management, Engineering and

Technology, 3(3): 12-25.


Volume 3, Issue 1

January - June 2014


88

APPENDIX

Table 1. Fundamental concepts of Service Science

FC No. Topic Focus

SSMED FC.1 Resource A resource is anything useful.

SSMED FC.2 Entities Each complex configuration of resources may not be able to develop

independently from service-oriented actions

SSMED FC.3 Access Rights In accordance with general social norms and regulations, each

organization develops specific access rights for the use and enjoyment of

the services provided

SSMED FC.4 Value co-creation Within the interactions at the base of the processes of value generation

occurs easily cooperate, collaborate, co-create.

SSMED FC.5 Governance

interactions

Governance mechanisms represent types of value propositions arising

from the interaction between the recognized authorities and systemic

entities governed

SSMED FC.6 Outcomes When single-service systems interact with each other, the only possible

outcome is the value co-creation

SSMED FC.7 Stakeholder The four main types of stakeholders are customers, suppliers,

competitors, authorities

SSMED FC.8 Measures The four main types of measurements are of quality, productivity,

convergence, and sustainable innovation

SSMED FC.9 Networks The interaction between service systems is based on a network logic and

encourages the development of systemic aggregations in the network

SSMED FC.10 Ecology The set of relationships detectable between different interacting entities

of the same population we call the ecology

Source: Authors’ elaboration from Maglio, Spohrer, Ager, Pass, 2008.


Volume 3, Issue 1

January - June 2014


89

Table 2. Fundamental concepts of Service Science

Macrocategory Detail FC SSMED Implications for the territory

The need to

belong

Contingency, opportunity, and

convenience often drive

organizations to join in ongoing

projects, even if implemented in

different contexts or

geographically distant, thanks to its

distinctive characteristics and its

own purposes, when judged

sufficiently aligned.

FC 3: Access

rights

The opportunity to become part

of a particular local context may

be independent of geographical

boundaries, but according to the

sense of belonging sometimes

found in the actions and

collaborations between

organizations.

Sustainability An interest in formulating a value

proposition that is really

appreciated and that maintains its

appeal over time stimulates the

choice of aggregations that have

been specifically selected and

designed.

FC 4: Value co-

creation

interactions

The ability to organize activities

and processes that support the

sustainable development of a

given area involves cocreative

interactions aimed at the

generation of value.

The definition of

governance

The defined strategies of

aggregation, the legitimacy of

governance (identified) can

facilitate connections and enhance

sharing of resources, information,

etc.

FC 5:

Governance

interactions

Territorial marketing success

inevitably comes from the

presence and action of a constant

agenda (often institutionalized),

organized, motivated, interested,

knowledgeable, able to respond

to requirements and implement

the appropriate policies.

Voluntary Decisions follow a precise

evaluation; selection is the result;

collaboration is the effect on

relationships, whether they are

commercial, personal, or other.

FC 9: Networks Networking is therefore the

result that arises between

organizations that choose to

cooperate voluntarily, expressing

a specific interest.

Identity The innate sense of identity, of

feeling part of something, often

guides collaborative actions aimed

at improving the conditions of

competitiveness and survival of

their context.

FC 10: Ecology In an area’s sense of identity is

its main leverage for the

qualification, recognition, and

valorization of action that is

organized, useful for promotion,

dissemination,

internationalization of quality

and/or characteristics (such as

the attractions) you want to clear

customize.

Source: Authors’ elaboration


Volume 3, Issue 1

January - June 2014


90

Figure 1. Place marketing and value creation

Old approach

From to

Place identified from close administrative

constraints

Value creation process based only on

optimization of relations and real

resources in the close administrative

constraints

Closed system Closed system

New approach

From to

Value creation system based on cooperation,

value cocreation, relations, and interactions

among stakeholders that have same strategic

goals

Place boundaries based on value

perception on the stakeholders’ side.

Stakeholders are in the place if they have

the perception of value in that place

Open system Open system

Source: Authors’ elaboration

BUSINESS - bslaboratory.net vol. 3 issue 1-2014.pdf · Mauro Sciarelli. Full Professor of Business...

Documents

Transcript of BUSINESS - bslaboratory.net vol. 3 issue 1-2014.pdf · Mauro Sciarelli. Full Professor of Business...